The difference between gross sales and net sales
Gross sales are the grand total of all sale transactions reported in a period, without any deductions included within the figure. Net sales are defined as gross sales minus the following three deductions:
Sales allowances. A reduction in the price paid by a customer, due to minor product defects. The seller grants a sales allowance after the buyer has purchased the items in question.
Sales discounts. An early payment discount, such as paying 2% less if the buyer pays within 10 days of the invoice date. The seller does not know which customers will take the discount at the time of sale, so the discount is typically applied upon the receipt of Gross Loss( 毛亏损 ) Gross Loss( 毛亏损 ) cash from customers.
Sales returns. A refund granted to customers if they return goods to the company (Gross Loss( 毛亏损 ) Gross Loss( 毛亏损 ) typically under a return merchandise authorization).
In total, these deductions are the difference between gross sales and net sales. If a company does not record sales allowances, sales discounts, or sales returns, there is no difference between gross sales and net sales.
All three of the deductions are considered contra accounts, which means that they have a natural debit balance (as opposed to the natural credit balance for the sales account); they are designed to offset the sales account.
The difference between gross sales and net sales can be of interest to an analyst, especially when tracked on a trend line. If the difference Gross Loss( 毛亏损 ) between the two figures is gradually increasing over time, it can indicate quality problems with products that are generating unusually large sales returns and allowances.
Presentation of Gross Sales and Net Sales Information
A company may elect to present its gross sales, deductions, and net sales information on separate lines within its income statement. However, doing so takes up a considerable amount of space, so it is much more common to see a net sales presentation, where the gross sales and deduction amounts are aggregated into a single net sales line item.
Gross sales can be a misleading figure when reported as a single Gross Loss( 毛亏损 ) Gross Loss( 毛亏损 ) line item, separate from the remainder of the income statement, since it may considerably overstate the amount of sales, and readers will have no way of knowing the amount of the various sales deductions. Thus, Gross Loss( 毛亏损 ) Gross Loss( 毛亏损 ) if sales are to be reported separately from the income statement, the amount should be reported as net sales.
What Is the Difference Between Gross Profit and Sales Revenue?
Gross profit can tell you how efficiently a business produces its products and generates revenue
A company's sales revenue (also referred to as "net sales") is the income that it receives from the sale of goods or services. For example, Gross Loss( 毛亏损 ) if a company charges $300 for a TV and sells 1000 TVs, its sales revenue is $300,Gross Loss( 毛亏损 ) 000.
On the other hand, gross profit is the income that a company makes from its sales after the cost of the goods and operating expenses have been subtracted. This includes expenses that depend on the company's sales – such as materials, labor costs, equipment, sales commissions, and depreciation that results from production -- all variable costs. It does not include fixed expenses such as rent, insurance, administrative costs, and other expenses that don't directly depend on sales.
Here are some examples of expenses that would and would not be included in calculating gross profit:
Materials used to make a product
Office supplies and equipment
Labor costs (for individuals involved in making products)
Labor costs (for office personnel and other non-production employees)
Depreciation on facilities and equipment used in production
Machinery used in production
To illustrate this, consider the Gross Loss( 毛亏损 ) following data from Apple's 2014 income statement:
Net Sales (Revenue)
Cost of Goods Sold
Depreciation Gross Loss( 毛亏损 ) Gross Loss( 毛亏损 ) and Amortization
General and Administrative Expenses
Using the above data, in order to calculate the gross profit we need to subtract the cost of goods sold as well as the depreciation and amortization expenses.
By calculating a Gross Loss( 毛亏损 ) company's gross profit, you can use the information to calculate the gross profit margin, which is Gross Loss( 毛亏损 ) equal to the gross profit divided by the revenue. This is a good way to determine how efficiently a company is producing its products compared to the rest of its industry, and to its Gross Loss( 毛亏损 ) own historical performance.
So, in the case of our Apple example, the gross profit margin would be equal to $70.5 billion divided by $182.8 billion, or 38.6%.
Be careful not to confuse Gross Loss( 毛亏损 ) gross profit with operating profit, which is a better indicator of the overall profitability of a company. In Gross Loss( 毛亏损 ) addition to accounting for the cost of goods, operating profit subtracts the company's operating expenses and expenses associated with developing new products. When evaluating the profitability of a business, bear in mind that it is entirely possible for a company to produce strong gross profits, but to still operate at a loss because of high fixed expenses.
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Disclosure of Loss Reportable Transactions
Congress has enacted a series of income tax laws designed to halt the growth of abusive tax avoidance transactions. These provisions include the disclosure of reportable transactions. Each taxpayer that has participated in a reportable transaction Gross Loss( 毛亏损 ) and that is required to file a tax return must disclose information for each reportable transaction in which the taxpayer participates. Use Form 8886 to disclose information for each reportable transaction in which participation has occurred. Generally, Form 8886 must be attached to the tax return for each tax year in which Gross Loss( 毛亏损 ) participation in a reportable transaction has occurred. If a transaction is identified as a listed transaction or transaction of interest after the filing of a tax return (including amended returns), the transaction must be Gross Loss( 毛亏损 ) Gross Loss( 毛亏损 ) disclosed either within 90 days of the transaction being identified as a listed transaction or a transaction of interest or with the next filed return, depending on which version of the regulations is applicable. See the regulations under section 1.6011-4 for more information.
Material advisors with respect to any reportable transaction must also disclose information about the transaction on Form 8918. This requirement applies to material advisors who provide material aid, assistance, or advice on any reportable transaction after October 22, 2004.
One reportable transaction that Gross Loss( 毛亏损 ) must be disclosed is a loss transaction.
Losses that must be reported on Forms 8886 and 8918
If a taxpayer claims a loss under § 165 of at least one of the following amounts on a tax return, then the taxpayer has participated in a loss transaction and must file Form 8886. If an advisor provides material aid, assistance, or advice on a transaction that results in a taxpayer claiming a § 165 loss of at least one of the following amounts and meets other filing requirements; Gross Loss( 毛亏损 ) then the advisor is a material advisor and must file Form 8918.
- For individuals, at least $2 million in a single tax year or $4 million in any combination of tax years.
- For corporations (excluding S corporations), at least $10 million in any single tax year or $20 million in any combination of tax years.
- For partnerships with only corporations (excluding S corporations) as partners (looking through any partners that are also partnerships), at least $10 million in any single tax year or Gross Loss( 毛亏损 ) $20 million in any combination of tax years, whether or not any losses flow through to one or more partners.
- For all other partnerships and S corporations, at least $2 million in any single tax year or $4 million in any combination of tax years, whether or not any losses flow through to one or more partners or shareholders.
- For trusts, at least $2 million in any single tax year or $4 million in any combination of tax years, whether of not any losses flow through to one or more beneficiaries.
- A loss from a foreign currency transaction under Internal Gross Loss( 毛亏损 ) Revenue Code section 988 is a loss transaction if the gross amount of the loss is at least $50,000 in a single tax year for individuals or trusts, whether or not the loss flows through from an S corporation or partnership.
Taxpayers whose filed return does not reflect a section 165 loss that equals or exceeds the applicable threshold amount have not participated in a loss transaction. If you are a partner, shareholder, or beneficiary of a pass-through entity, you have participated in a loss transaction if your tax return reflects a section 165 loss allocable to it from the pass-through entity that Gross Loss( 毛亏损 ) equals or exceeds the applicable threshold amount.
Losses that do not have to be reported on Forms 8886 and 8918:
- Losses from casualties, thefts, and condemnations
- Losses from Ponzi Schemes
- Losses from the sale or exchange of an asset with a qualifying basis
- Losses arising from any mark-to-market treatment of an Gross Loss( 毛亏损 ) item
- Certain Swap losses (see Notice 2006-16 )
For additional information on losses that do not have to Gross Loss( 毛亏损 ) be reported on Form 8886, see Revenue Procedure 2004-66 and Revenue Ruling 2009-9.
Gross Profit Calculator
This Gross Gross Loss( 毛亏损 ) Profit Calculator will help you visualize how to achieve the Gross Profit value on the Income Statement. Gross Gross Loss( 毛亏损 ) Profit is achieved by subtracting Cost of Goods Sold (COGS) from Revenue.
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