Which financial metric is calculated by subtracting sales returns and discounts from gross sales?

• A. Net Sales
• B. Gross Sales
• C. Operating Revenue
• D. Net Income

Answer: (A)

Net sales is the revenue figure that reflects what a company actually keeps from sales after deductions for returns and discounts. You start with gross sales—the total amount billed from sales before any reductions—and subtract sales returns (goods customers returned) and discounts (price reductions or allowances given). What remains is net sales, the revenue the company recognizes from its sales activities.

This matters because gross sales alone can be inflated by returns and discounts, giving a misleading picture of how much revenue the business truly earned from its customers. Net income, by contrast, is further along the financial statement, representing profit after all expenses, taxes, and interest. Operating revenue is related but doesn’t specifically capture the subtraction of returns and discounts, which is the key distinction here.