Gross sales refers to the amount which has been earned from all sales. To be more specific, however, this is determined based on invoices. As such, this does not yet take into account adjustments to be made as a result of the return of merchandise. In the same way, should a discount be made available for a particular item, this does not automatically count into the computation for gross sales.
Furthermore, sales and similar taxes are not included in the computation. After all, the business does not keep the money collected for tax, but only serves as a collector and will then have to turn over the amount to the government. Accounting for this is separate.
In more concrete terms, for a clothing shop, for example, all cash and credit card purchases for a specific period of time will count toward the gross sales figure.
It is important for business owners to keep track of their gross sales figures, first of all, because this gives them an idea of how quickly stock turnover is taking place. Having the merchandise stagnate in the store or in stockrooms is equivalent to loss for the business, so making sure that products move as quickly as possible from the store to the consumer is crucial.
While it is important for businesses to be aware of their gross sales figures, it is also necessary to understand that this is not a reliable gauge of the company’s financial health. It is also necessary to find out how much is left with the company after all financial obligations have been met, as this gives a more reliable picture of how well the company is able to sustain operations.