Gross Sales vs Net Sales

This video shows the difference between Gross Sales and Net Sales. Gross Sales is the sales revenue of a company before accounting for any sales discounts or sales returns and allowances. Sales discounts and sales returns and allowances are subtracted from Gross Sales to obtain Net Sales. Thus, the formula for computing Net Sales is:
Gross Sales - Sales Discounts - Sales Returns and Allowances = Net Sales

For most financial ratios, when Sales Revenue is used as an input for calculating the ratio, you need to use the Net Sales instead of Gross Sales.
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