Gross sales revenue is the total amount of sales from products, goods and services made during the accounting period. Gross Sales – Deductions = Net Sales . Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Finding net sales will help you create an income statement, a valuable planning tool for anticipating your income and expenses. Comparing net sales to gross sales, you can determine quality issues that may be present within your business. Given that the formula for calculating net sales is gross sales minus sales returns, sales discounts and sales allowances, it's relatively easy to calculate. Calculate net sales by finding the figure for gross sales in a specified period, then deduct sales returns, sales discounts and sales allowances. Contra accounts keep your accounting records clean by showing how your company arrived at the net sales figure on reports.
By using the provided formulas, you can calculate this company’s inventory to net sales ratio, as follows: As you can see that Company A has an inventory to net sales ratio of 0.11. Let’s take a look at an example. If you use the net method and your customers took advantage of \$500 worth of discounts during the month, you would be left with \$9,400. We are committed to providing timely updates regarding COVID-19. [ RELATED ARTICLE: What Is Gross Profit? ] Under an allowance method, the company estimates how many sales returns will happen during the year and book an allowance. The calculation itself for net profit is fairly simple – it’s just gathering all the data you need that can be tricky. Thanks -- and Fool on! To calculate the net sales, you would deduct your sales returns. Email us at knowledgecenter@fool.com. Reviewed by: Jayne Thompson, LL.B., LL.M. Net sales show the revenue your company makes after deductions such as discounts, returns, and allowances are subtracted from your total profits. You offer 10 percent off the price to make the sale. Then, you calculate a sales forecast using the following formula: Expected revenue = Deal amount x Probability. Save money and don’t sacrifice features you need for your business with Patriot’s accounting software.

This gives you the net sales price. To calculate the net sales, you would deduct your sales returns. The items recorded in contra accounts are designed to offset the balance of another account. It is important to carefully record both your company’s gross sales and deductions in order to find net sales.