Legal Definitions - net sale

Net sale refers to the total revenue a business generates from its sales of goods or services, after accounting for all deductions. These deductions typically include customer returns, sales allowances (price reductions given for damaged or defective goods where the customer keeps the item), and discounts offered. Essentially, it represents the actual amount of money a company earns from its core selling activities, providing a more accurate picture of its operational performance than gross sales alone.

Here are some examples to illustrate the concept of a net sale:

• Example 1: Online Retailer

  An online clothing retailer records $150,000 in total sales for the month (gross sales). However, customers returned $10,000 worth of merchandise, and the retailer issued $3,000 in promotional discounts for a special event. To calculate the net sale, the retailer subtracts the returns and discounts from the gross sales: $150,000 - $10,000 (returns) - $3,000 (discounts) = $137,000.

  This example demonstrates how the net sale reflects the true revenue the retailer keeps after accounting for items that were sent back and price reductions given to customers.

• Example 2: Commercial Software Company

  A company that sells business management software generates $800,000 in new license sales during a quarter (gross sales). During the same period, they had to issue $25,000 in credits (sales allowances) to clients who experienced significant service disruptions, and they offered $15,000 in volume discounts to large corporate buyers. The net sale for the quarter would be: $800,000 - $25,000 (allowances) - $15,000 (discounts) = $760,000.

  Here, the net sale illustrates the actual income from software licenses after factoring in compensation for service issues and price reductions for bulk purchases.

• Example 3: Food Distributor

  A food distribution company sells $500,000 worth of produce to various grocery stores in a week (gross sales). Due to a quality control issue, one store returned $8,000 worth of spoiled goods. Additionally, the distributor gave a $2,000 allowance to another store for a late delivery, even though the store accepted the produce. The net sale for the week is calculated as: $500,000 - $8,000 (returns) - $2,000 (allowances) = $490,000.

  This example shows how the net sale provides the distributor's actual revenue from sales, taking into account both products that were returned and price adjustments made for service or quality issues.