Gross sales include total revenue from sales before deductions, including shipping charged to the buyer. However, gross sales do not include actual postage costs, discounts, returns, taxes, or other expenses.
Net sales reflect deductions from gross sales, such as discounts, returns, taxes, and expenses. The difference between gross sales and net sales is that net sales factor in reductions to gross sales.
The Role of Sales Tax
Sales tax is not counted as income or gross sales by companies as it is collected on behalf of tax agencies. It is essential to understand that sales tax is a separate entity from gross sales and revenue.
Importance of Gross Sales in Financial Reporting
On a sales tax return, gross sales refer to the total sales before deductions over a specific period. Tracking gross sales over time is crucial for evaluating sales strategies and company performance. Comparing gross sales to net sales provides insights into the difference between total revenue and revenue after deductions.