Gross Revenue vs Net Revenue Reporting: What’s the Difference?

The entity that provides and controls the goods or services is called the principal. If an entity arranges for another party to provide goods or services, the arranging entity is called an agent. Net revenue is usually reported when there is a commission that needs to be recognized, when a supplier receives some of the sales revenue, or when one party provides customers for another party.

How Do You Calculate Gross Revenue?

1. A company may decide to present gross sales, deductions, and net sales on different lines within an income statement.
2. They should appear right beneath your gross sales figure after showing the deductions you applied.
3. These companies and many others choose not to report gross sales instead, they present net sales on their financial statements.
4. Gross margin is an important figure that investors and other stakeholders keep a track of.
5. One of the most common reasons it happens is accounting for gross sales only.

Given the formula above, you’ll need to know your gross sales amount for the period, as well as the totals of any allowances, discounts, or returns to establish your net sales amount. So, the gross sales of TechXYZ for that quarter is $2,000,000 before considering business expenses, deductions, discounts, returns, and allowances. Net sales show you how many customers are using your early-payment discount.

How to create a sales process flowchart: 4 steps to streamline your sales

As noted above, gross sales show the total revenue accumulated from sales before sales deductions. They’re usually recorded at the top of the company’s income statement and provide a picture of the general sales activity. If your company allows customers to return products or services after purchase, managing these sales returns can be complex for accurate financial reporting. Gross sales, also called gross revenue, represent the company’s total sales over a selected period. Gross sales refer to your sales before deducting sales allowances, discounts, and taxes, factoring in all recorded sales transactions and receipts. Gross sales represents all the income from selling products or services, whereas total revenue is a broader term that encompasses all income a company generates.

Deductions

Net sales, on the other hand, subtracts deductions—hence the distinction between net and gross. If possible, comparing your net and gross sales figures against those of your competitors can provide valuable information about your market and your position within it. Revenue, deductions, and profit margins will differ per industry and business, so it’s best to ensure your analysis includes businesses similar to yours. While your gross sales amount gives you a high-level view of your overall income over a period, it doesn’t tell you much about your business’s profitability. However, you can use your gross sales figure to help determine other important sales metrics, such as your net sales and gross profit margin amounts.

In other words, your sales return account gets debited and the cash or accounts receivable account gets credited. The net sales of your business are typically reported in the income statement. Your income statement showcases the total expenses of your business in the form of three different categories, including direct expenses, indirect expenses, and capital expenses.

1. However, there may be times that your customers doesn’t make the full payment against the invoices sent across to them.
2. This would give you a figure of $7,000 net sales vs. a gross sales figure of $8,000.
3. Net sales provides a picture of how much revenue you’ve generated from your sales activities.
4. You’ll only know about this if you compare your gross and net sales together.
5. Some teams monitor the two in relation to each other in order to keep an eye on their margin.
6. Gross sales, also called gross revenue, represent the company’s total sales over a selected period.
7. Based on your gross and net sales, you can see where to allocate spending, how much to allocate and where spending might not be necessary.

If you find a product that’s common in returns, you can decide whether you need to improve it or remove it altogether. If your gross sales show that you offer sales discounts more than necessary, affecting your net profit, you can make better decisions regarding when to offer them. Seeing these numbers could, for example, flag an issue with a specific product that gets returned often. Learn everything you need to know about gross sales, including the gross sales formula, how to calculate it, and what you can learn from tracking this metric.

Pipedrive’s revenue management software allows sales teams to track revenue, sales (including gross and net sales) and invoices – all from one location. If you’re experiencing an increase in returns, start by identifying the main cause. Usually, there are return authorizations in place to record the reason for a return. If that’s the case, you’ll be able to see whether there are any opportunities to improve the manufacturing, quality control, delivery and other sales processes to reduce the number of returns.

You need to use an accrual method of gross sales vs net sales accounting while recording sales in your books of accounts. This is because the accrual method of accounting recognises revenue when it is earned and expenses when they are incurred, and matches revenues with expenses during specific accounting periods. This means your total business revenues may reduce due to returns, discounts, and allowances, so you need to adjust such items to compute net sales for your business. Often, investors will be more interested in your gross revenue because it shows your businesses’ ability to generate sales and potential for growth. Calculating net pay is significant for employees as it determines their take-home pay, which is the amount they actually receive after all deductions are made from their gross pay.

Both gross revenue and net revenue are financial metrics that offer insights into your company’s financial health, but from different perspectives. The main difference between gross sales and net sales is the inclusion of returns, discounts, and allowances. That’s why the latter gives a better insight into a company’s financial position.

Start calculating your small business’s net sales.

Find out which attendance management tools you can use to track leave and improve productivity levels. By combining the two, you get a more accurate representation of your current sales performance. If there are minor issues with the delivered product after a sales transaction but it is still usable, the seller and customer might agree to a compromise. Rather than the customer having to return the goods, the seller could propose a partial refund against the paid invoice. When the income statement is finished, you can use this information to calculate your sales tax and inform your future sales activity. The system assumes that you have assigned not only your revenue accounts to the GL Type of ‘Sales’ but that you have also assigned your Discounts & Comps account(s) to the GL Type of ‘Sales’ as well.