What is net revenue?

Definition

Net revenue is what remains of billed sales after returns, discounts, and allowances have come off. On the books, this is the revenue total the Income Statement keeps, not the original invoice before those cuts.

A kitchenware shop that billed $800 of pans and then took back $80 of bowls reports $720 here. The $800 was the billed start; this line is the leftover.

Cash-basis books may only ever show what was collected. Accrual books start from the billed amount, then subtract the contra-revenue accounts, and they still hold any unpaid leftover in accounts receivable.

This figure is billed sales after contras. It is not cash in the till, and it is not profit after the cost of the goods.

Where it shows up

Balance Sheet: Related to the net collectible on billed sales.

P&L: Located at the top of the Income Statement after contra-revenue.

Cash flow: Decreases in receivables, reported cash from operating activities increases.

See also: Gross Revenue · Revenue · Gross Profit

When you look at your Income Statement, this total sits at the top after the contra-revenue accounts have done their work. The billed week starts higher; this is the number that continues the walk toward profit.

When the figure is high, the shop kept more of what it billed. When it is low, returns, discounts, or allowances ate a larger share of the tickets.

The Balance Sheet does not list this as a permanent account after the close. The net amount still owed sits in accounts receivable until cash arrives.

The profit and loss statement is the home for this leftover. After the close, the period's net result flows into equity, and the revenue and contra accounts reset.

On the Statement of Cash Flows, collecting the remaining receivable is an operating inflow. A return that cancels a receivable does not bring cash in.

How it works

The shop bills the customer, then subtracts anything that later comes off that ticket. Sales returns and allowances and sales discounts are the usual contra-revenue accounts that do that subtracting.

Those contras are not expenses. They reduce billed sales so this line is the leftover, not a new cost sitting with rent or wages.

A credit memo is often the document behind a return or allowance. It lowers what the customer owes and raises the contra that brings this line down.

An early-pay cut works the same way on the P&L. The billed ticket stays on the gross side, and the discount taken is what this leftover does not keep.

Stay with the leftover when you read the week. The bank balance explains what was collected, and this line explains what billed sales survived the cuts.

Gross profit starts from this leftover, not from the original invoice, once cost of goods sold is subtracted. Mixing the billed start into that math overstates the margin.

A collection on an open invoice does not change this line. Cash replaces the receivable; the leftover billed total was already set.

After the close, the sales and contra accounts return to zero. Next month's leftover starts from next month's tickets and next month's cuts.

Keep the invoices, credit memos, and discount terms that support the period total. Anyone tying the P&L to receivables should be able to walk from billed to leftover.

Do not treat cash in the till as this figure. A busy Saturday can collect old invoices while this week's leftover is smaller than last week's.

Example

A kitchenware shop bills $800 of pans on Thursday. On Saturday a customer returns $80 of bowls from that same ticket.

The shop already recorded $800 of billed sales. The return is recorded:

Debit: Sales returns and allowances $80

Credit: Accounts receivable $80

Net revenue for the week is $720. The billed start was $800, and this leftover is what the Income Statement keeps.

If another customer takes a $16 early-pay discount on a $400 open invoice, that $16 also comes off this leftover. The original $400 ticket is still the billed start.

The Balance Sheet receivable falls by the $80 return. No cash moved on that piece, and the P&L now shows $720 after the contra, not $800.

Common mix-ups

Net revenue is not the billed invoice before cuts. That billed start is gross revenue; this line is what remains after contras.

Net revenue is not cash collected. Cash collected is a bank movement, and this leftover may still sit in receivables.

Net revenue is not profit. Profit is what remains after costs, and this line is only billed sales after contras.

Related terms

• Gross Revenue: Total billed sales before returns, discounts, and allowances.
• Sales Returns And Allowances: A contra-revenue account for goods sent back or price concessions given.
• Sales Discounts: A contra-revenue account for price reductions and early-payment terms taken by customers.
• Revenue: The total value of goods and services the business earned in a period.
• Gross Profit: Revenue minus the direct cost of delivering it.
• Income Statement: A statement showing revenue earned and expenses incurred over a period, ending in net income.
• Net Margin: Net income as a percentage of revenue.
• Credit Memo: A document that reduces what a customer owes.