Net sales are total sales after subtracting discounts , returned goods, and allowances.
The net sales figures are usually taken into account by investors when they’re evaluating whether to invest in a business as it is the more accurate figure in determining the revenue a company receives from sales.
Formula to calculate net sales.
Gross sales – This refers to the unadjusted amount of sales revenue a company earns.
Discounts – These are rewards that extend to customer invoices when they meet certain criteria.
Sales returns – This implies that a customer returns unwanted goods to get a refund from the company.
Allowances – This represents a price reduction that occurs when goods are damaged, defective or their value is otherwise reduced for reasons other than discounting.
Example:
A textile company made gross sales amounting to $2 million. Discounts amounting to $200,000 was rewarded to regular customers. The value of the dress making materials returned amounted to $50,000. The bulk buyers were allowed allowances that amounted to $50,000. Determine the net sales of the company for that year.
Therefore, the net sales amount of the is $ 1,700,000.
