Gross sales minus sales returns and allowances, and minus discounts on sales yields which measure?

• A. Net sales are equal to gross sales minus returns and allowances and discounts
• B. Net sales
• C. Gross sales
• D. Revenue

Answer: (B)

Net sales is the amount a company actually earns from its sales after accounting for returns, allowances, and discounts. Gross sales are the total billed before any reductions. Subtracting the value of goods returned (returns and allowances) and any discounts given to customers from gross sales yields net sales, which represents the real revenue from core selling activities. For example, if gross sales are 1,000 and there are 120 in returns/allowances and 30 in discounts, net sales would be 850. Revenue is a broader term that can include other income beyond core sales, so it isn’t the specific measure described here.