What Is the Difference between Net Sales and Net Income?
The main aim of a business organization is to earn a profit. The profit can only be earned after making some sales which happen to be the main source of income.
The article provides detailed insight into the difference in net sales and net income to shade off the confusion being experienced by many people.
What Are Net Sales?
Net sales refer to the amount arrived at after deducting returns, goods return due to damages and discount allowed.
Sales result in the transfer of ownership from the seller to the buyer. Gross sale is the amount collected after the sale of the product or services rendered.
Gross sale comprises of all discounts, rebates, allowances and sales return. Net sales occur after subtracting all deductions from the gross sales.
Net sale appears on the top line of the income statement and it typically refers to the actual amount of the organization.
What Is Net Income?
Net income is the actual earnings of the business organization. Net income is calculated by deducting the cost of goods sold, operating expenses, interest, taxes and stock dividends from revenue.
Net income tends to appear at the bottom line of the income statement and the company tends to hold as retained earnings. Sometimes the earnings are distributed to equity shareholder funds.
The division of the total number of shares from net income can help to calculate the number of earnings per share. Generally, net income increases equity shareholder’s fund.
Comparison Chart: Net Sales Vs Net Income
|Basic Terms||Net Sales||Net Income|
|Meaning||Refers to the amount of sales after deducting discounts, returns, and allowances||Refers to the actual earnings of the company during a certain financial year|
|Interdependency||Not dependent||Dependent on net sales|
|Benefits||Source of revenue to the company||Shows the profitability of the company|
|Aim||To know the actual sales in a specific financial period||To show operational efficiency of the company performance|
Differences between Net Sales and Net Income
- Net income is dependent on net sales
- Net sales show the source of revenue to the company whereas net income shows the profitability of the company
- The main aim of net sales is to show the actual sales in a specific financial year whereas net income to show the operational efficiency of the company
- Net sales refer to the number of sales after deducting the discount, returns, and allowances while net income is the actual earnings of the company
Similarities between Net Sales and Net Income
- Shown on financial statement
- Both are vital for the survival of a business
- Both useful for the users of financial statements
- Tend to be calculated at the end of the financial year
The core difference between net sales and net income is that the net sales are the amount received after deducting discounts, allowances, and returns while net income is the actual earnings of the business organization.