Cash flow represents the actual cash moving in and out of a business, while gross sales represent the total revenue earned from sales before any expenses are deducted.

Primary Implication

If you have a large gap between the amount reported for Gross Sales and Net Sales, then you either offer a large amount of sales discounts, accepted returned merchandise, or have high write-offs for a bad debt.  While having a high Gross Sales number is ego-building, it’s the Net Sales representing the cash flowing into your business that matters.

Correct for this by ensuring you collect the money owed you.

Overview

There is no cash flow from a Gross Sale until the customer payment is collected.  Every dollar of Gross Sales made can be a total dollar of cash when collected that you can use to pay expenses.

Net Sales are cash collected from a sale and more accurately represent the profit potential in every sales dollar.  Not the Gross Sales made.

The difference between Gross and Net Sales is the deduction of sales discounts, returned merchandise credits, and write-offs for a bad debt from Gross Sales.