Question

I need to calculate Net Sales - this is what I'm using Net sales = Gross Sales - Sales returns, allowances and discounts.

What is Gross Sales - throughout the accounting period all sales have been on accounts receivable

To calculate gross sales do I use my accounts receivable figure which is including GST collected or do I use the sales revenue figure ?

Answer 1

Gross sales does not include cost of goods sold, operating expense, tax expense or other expense. While calculating gross sales, the amount of tax / GST is excluded. Thus to calculate gross sales, you have to use the sales revenue figure. Since the accounts receivable figure includes GST, we do not use it. The amount of GST is entirely shown in a different account (GST payable account) and it does not affect the sales figures.

Once the amount of gross sales is calculated from the above explanation, we can calculate net sales using the below formula:

Net sales = Gross Sales - Sales returns, allowances and discounts

Thus the formula used by you to calculate is correct and to calculate gross sales, sales reveue figure must be used.