Gross Sales vs. Gross Receipts

While you might think your sales and receipts will always equal, that’s not necessarily true. Different financial terms can become confusing, and understanding the difference between similar-sounding terms, such as “gross,” “net,” “revenue,” “income,” “sales” and “receipts” will help you better plan your business’s finances, meet your reporting requirements and generate higher profits.

While sales can refer to the number of units of a product you sell, in accounting terms, it refers to revenue you generate from selling your product or service. This does not include revenue from other sources, such as interest or penalties you earned on credit sales or sales of land, machines or a building.

Small business owners often use the word “receipts” as a synonym for “sales” or “income,” but as an accounting term, it refers to all of the money you take in. That can include non-sales revenue such as interest earned on investments, rent from a tenant or other forms of revenue not related to what you make and sell.

Gross sales refers to all of the revenue you generate from selling your main product or service. If you make shoes, your gross sales amount refers to the money you received from selling shoes. Gross receipts refers to all revenues received from sales and other sources, such as rent, royalties, investment income or cash from the sale of an asset. Many small businesses generate revenue only from the sale of their products, so gross sales and gross receipts are the same. The word “gross” refers to the total amount of money you received before deducting any taxes, production costs or overhead expenses.

You might see that the financial report your accountant prepares shows different amounts of income and revenue. Revenue is money that you earn, while income refers to pretax profits, or revenue from which you’ve subtracted your expenses to make and sell your product or service. For example, you might generate $10,000 in sales revenues. Of that, you spent $7,000 to make the product and run your business. Your pretax, or gross, income is $3,000. After taxes, you have your net income.

Different states use different definitions for “sales” and “receipts,” so it’s important to work with a bookkeeper, certified public accountant or tax attorney who knows your state’s rules for recording your revenues. This person should also be able to guide you when it comes to Internal Revenue Service definitions, which will guide you when you prepare and file your annual tax return.