Businesses require economic resources to start up, maintain and continue to run their revenue-producing operations. To acquire these resources, businesses can either incur obligations to creditors or receive them from their owners as investment. Once the business' operations are up and running, the business continues operating them to produce revenue through incurring expenses. Revenues minus expenses is equal to the business' net income or financial gain through running its operations for the period. Gross sales is the initial step in the calculation of net income.
Annual means that the gross sales figure is for a year. Most businesses do their accounting on a monthly and a yearly basis, calculating their monthly net incomes throughout the year before summing them up at year's end. Some businesses use a fiscal year rather than the calendar year, using a period that begins with a month other than January and thus more suited to their accounting needs.
Income statement lists all of a business' revenues and expenses for the period before summing them up to produce the business' net income or net loss for the period in question. Revenues from sales plus non-operational revenues are equal to the business' total revenues, while cost of sales, operating expenses, and interest and taxes make up total expenses. Revenues minus expenses is equal to either net income or net loss depending on which sum is higher.
Gross and Net Sales
Gross sales is the business' total revenues from sales of its products before deductions. Roughly, it can be calculated as being the number of products sold multiplied by the price of those products. In contrast, net sales is the business' true total revenues, being its revenues from sales once the right deductions are made from gross sales. Such deductions include returns, discounts and allowances.
Discounts, Returns and Allowances
Certain deductions are made from gross sales because these phenomena decrease the actual revenues that the business received from its sales. Common deductions include returns, discounts and allowances. Returns are the products sold that were returned by customers to the business. Discounts and allowances are decreases to the selling price of sold products intended to boost number of sales.
Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute.