What is net sales and how is it useful in caluculating total revenue for a business?

Question

What is net sales and how is it useful in caluculating total revenue for a business?

Answer 1

In bookkeeping, accounting, and finance, Net sales' are operating revenues earned by a company when it sells its products. Revenue net sales are reported directly on the income statement as Sales or Net sales.

Gross sales are the sum of all sales during a time period. Net sales are gross sales minus sales returns, sales allowances, and sales discounts. Gross sales do not normally appear on an income statement. The sales figures reported on an income statement are net sales.

sales returns are refunds to customers for returned merchandise.

sales allowances are reductions in sales price for merchandise with minor defects, the allowance agreed upon after the customer has purchased the merchandise.  

sales discounts are reduced payments from the customer based on invoice payment terms such as 2/10, n/30 (2% discount if paid within 10 days, net invoice total due in 30 days).

Sales Returns and Allowances and Sales Discounts are contra-revenue accounts.

In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.