Understanding the Types According to Which Revenue is Calculated
Sales are essentially activities pertaining to the quantity of products sold within a specified time frame or sales. A sale is a transfer of a particular transaction from seller to purchaser. In most traditional types of transactions, the parties involved (the seller and the buyer) make the purchases in exchange for money. In sales, however, the parties involved do not make the purchases; rather, the products sold are transferred between the seller and the buyer.
The major activities that take place during the sales process include the preparation of the items for sale, the listing of the items for sale, the negotiation of the price, and the delivery of the items for sale to the ultimate customer. The final step in the sales process is the payment or the receipt of the agreed price by the buyer. In this article, we will discuss some important terms used in sales. These terms may be found in the glossary found in the Online Sales Glossary.
Gross sales refers to the total gross sales less any shipping charges and includes all product-related expenses. Net sales refers to the gross sales less any shipping charges and includes only those expenses which are directly related to sales. Net sales in a transaction does not include taxes, interest, charges of credit and handling, and charges based on contract terms. Net sales in the context of a retail chain include gross sales of products sold to customers and the difference between actual inventories and current accounts receivable. In a grocery store chain, for example, gross food sales refers to the total food items sold and current accounts receivable refers to the amount of money that would be owed to the supplier if a purchase were made today. This means that the term outstanding on an invoice does not necessarily equal the amount of inventory that has been placed for future sales.
One term that you might encounter when you are conducting business online is “cost-per-sale” or “term sales”. This term is defined as the amount paid for each sale transaction. The term revenue is used to refer to the income from selling activities. These two terms can be confusing, and you should understand them.
gross sales refers to the amount of sales an entity earns based on the amount of services rendered to customers. Net sales refers to the revenue realized from selling activities. These two terms are often interchanged because both revenue and gross sales are used to calculate the income statement of an organization. When this is done, it is called a revenue statement while gross sales represents the amount of revenue earned and net sales represents the amount of sales made.
There are many more types according to which revenue is calculated. However, these four types are the most common. It pays to become familiar with these types and the meaning of their definitions before you conduct a business transaction. More information about the four types of revenue can be found in the Online Sales Glossary.