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What is the definition of net sales?

Author:
Harold Averkamp, CPA, MBA

Definition of Net Sales

Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances.

When a company makes a sale, the general ledger account Sales is credited and the Sales account will have a credit balance.

If a company grants an early payment discount, the amount of the discount is debited to the contra revenue account Sales Discounts. Similarly, if a company gives a customer a sales allowance or accepts a return of goods, the account Sales Returns and Allowances will be debited.

Example of Net Sales

Assume that in the most recent month, a retailer had $220,000 of merchandise sales. It also allowed customers $2,000 in early payment discounts. Some customers were allowed to return goods that had been sold for $4,000 and a few customers were given sales allowances for $1,000.

The retailer’s net sales for the month were $213,000 ($220,000 – $2,000 – $4,000 – $1,000).

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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