The aim of every business is to generate sales since it is the main source of earnings. Consequently, the net income usually is directly correlated with the company’s sales. As an example, the higher the sales, usually accompany with higher income. Hence, if you are unsure about it, do not hesitate to seek help from the experts in a bookkeeping service in Johor Bahru.
What are Net Sales?
A sale is a transaction in which goods or services are provided to consumers in exchange for economic benefits. The revenue gained from the sale of products or services net of any discount given to the customers is known as net sales. The business owner usually offers various benefits to consumers to increase their sales (Also see Skills that Every Sales Team Should Master) and build a good relationship with them. The gross sales exclude all discounts, sales returns, rebates and allowances for damaged or lost goods.
What is Net Income?
The remaining income (Also see Understanding the Differences Between Sales Tax and Income Tax) after subtracting all costs, expenditures, taxes, interest rate, loss for sale of assets and preference shares dividend from net sales is known as Net Income. The company can either be distributed among the equity shareholders as dividends or hold Net Income as retained earnings. By dividing the total share amount by the net income, we can determine the earnings per share. It can result net increase in the equity shareholder’s fund when there is net income.
What are the differences between Net Sales and Net Income?
- Net Sales is the amount showing the company’s actual sales, while Net Income is the amount revealing the actual Income gained from net sales after deducting other company operational expenses.
- Net Sales are the mainstream of revenue, while Net Income assists in comprehending the company’s financial health.
- Net Income is dependent on Net Sales.
- The first line of Income Statement reveals the Net Sales, while Net Income is shown in the last line.
Similarities
• Recorded in Financial Statement.
• Both are important for the survival of a business.
• Used by financial statement readers.
• They are calculated periodically.
Conclusion
Net Sales and Net Income are used to analyse the company’s financial performance. They show the income from normal business operations and the company’s net earnings in each period. These crucial figures are usually used to compare two or more companies. Along with that, future sales and income forecasting and budgeting can also be made.