How to Determine Net Sales on an Income Statement
A company reports the value of the products it sells to customers on the top line of its income statement as "sales," but it may not keep the entire proceeds. It may provide refunds for product returns or convince a customer to keep a defective product by offering an allowance, which reduces the original selling price. The company also may offer a discount to customers who purchase products on credit to entice them to pay their bill sooner, which speeds up a company's collections. The result of these deductions from a company's sales is called net sales, which you can calculate from its income statement.
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Instructions
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1
Determine the amount of a company's sales on the top line of the income statement. For example, assume the company's sales are $140,000.
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2
Determine the amount of sales returns and allowances listed below the company's sales on the income statement. In the example, assume the company has $5,000 in sales returns and allowances.
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3
Determine the amount of sales discounts listed below returns and allowances on the income statement. In the example, assume the company lists $10,000 in sales discounts.
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4
Subtract sales returns and allowances from sales. In the example, subtract $5,000 from $140,000 to get $135,000.
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5
Subtract sales discounts from your Step 4 result to calculate the company's net sales. In the example, subtract $10,000 from $135,000 to get $125,000 in net sales.
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Tips & Warnings
Watch a company's net sales over different accounting periods to determine any changes compared to sales. If a company's net sales are becoming a smaller portion of its sales, it may be having trouble with its products.
