How to Calculate Net Credit Sales

If you are running a company then you must know what the term net credit sales means. However, you may not know how to calculate net credit sales of a company. In this article you will get to know how you can calculate net credit sales of a company. Before moving forward, I want you to know what exactly a net credit sale is.

Net credit sales of a company is determined as that amount which is left after deducting all the discount offered and money paid out for returns and other factors from the company’s sales.

There are two types of sales.

  1. Cash sales
  2. Credit sales

Each one has its own related allowances, discounts and returns. When you are calculating net credit sales then you have to ignore cash sales completely. Cash sales have nothing to do with credit sales. The formula for the calculation of net credit sales is as follows: -
Net Credit Sales Formula

Net credit sales = gross credit sales – related sales returns & allowances – related sales discounts.

Steps for calculating net credit sales:

  • Step 1: Consider the amount of gross sales of the company made during the time period for which you are doing the calculation. Normally the time period taken is of 1 month or 1 quarter or 1 year.
  • Step 2: Consider the number of sales-returns for that specific time period as the gross sale of the company. The sale-return number is that amount of money which is paid to the customers in exchange of those products which customers return or refund.
  • Step 3: Calculate the sales allowance for that given time span. This is that amount which has been paid as discount to the customers.
  • Step 4: Add the sale-returns and the sales allowances together.
  • Step 5: Subtract the amount you get after adding sale-returns and sales allowances from the gross sales total for the given time period.
  • Step 6: The amount which you get now is the net credit sales of your company for that specific time period.

For example let us assume this data

  1. Gross sales of a company for a year – Rs 1,00,000
  2. Sale-returns number – Rs 5000
  3. Sales allowance – Rs 10,000

Gross sales – (sale-returns number + sales allowance) = Net credit sales

Rs 1,00,000 – (Rs 5,000 + Rs 10,000) = Rs 1,00,000 – Rs 15,000 = Rs 85,000

In simpler words, to calculate net credit sales, you have to add up all the income coming from different sources, including cash and credit card receipts to obtain total gross sales. Deduct returns from it. In a business it is pre-decided that it would experience returns. In the same way it has to experience allowances too. Allowances are in terms of discounts provided to the customers. You have to deduct these allowances from the gross income also. The amount which is left in your hand is the net credit sales.

Tips & warnings:

  • Keep a track sheet of all the returns, allowances and discounts given to customers.
  • It will be better if you keep separate record of each individual item to make calculation of net credit sales much easier.

Related Content:

  1. How to Calculate Sales Tax
  2. How to Calculate Credit Card Interest
  3. How to Forecast Sales
  4. How to Calculate Operating Margin
  5. How to Set Target Sales

One Response to “How to Calculate Net Credit Sales”

  1. Yousuf Zahid says:

    All above steps understood but in a ‘financial statement analysis’ question, if an ‘accounts receivable/sales ratio’ is asked and only ’sales’ and ‘accounts receivable’ amounts are given then should it be assumed that all sales were credit sales?

    Related sales returns & allowances and related sales discounts have not been mentioned in the question.

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