Difference Between Gross and Net Revenue Reporting
By Markets & Investing DeskUpdated Nov 10, 2026
Key takeaways
- Net revenue subtracts returns, allowances and discounts from gross sales, but not cost of goods sold.
- Under ASC 606, a company that controls a good or service before transfer is the principal and reports gross.
- Control indicators include fulfillment responsibility, inventory risk and discretion in setting the price.
- Gross or net presentation changes revenue and margin percentages but leaves gross profit, net income and cash flow unchanged.
Gross revenue is the full amount a business bills for its sales before anything is subtracted. Net revenue is what remains after sales deductions such as returns, allowances and discounts. The term also has a second meaning in accounting standards: the rule that decides whether a company records the entire price a customer pays (gross, as a principal) or only its commission or fee (net, as an agent). Under U.S. GAAP’s revenue standard, ASC 606, the deciding factor is whether the company controls the good or service before it reaches the customer.
The two meanings of “gross vs. net”
The phrase covers two separate questions.
- How much of a sale survives sales deductions. A retailer sells $1 million of goods, customers return $40,000, and $20,000 goes to early-payment discounts. Gross sales are $1 million and net sales are $940,000.
- Whose revenue the sale is. When a marketplace, travel site or reseller sits between a supplier and a customer, both cannot report the full price. One party is the principal and reports gross. The other is the agent and reports net.
Gross revenue vs. net revenue on sales
Gross revenue counts every dollar invoiced for sales in the period. It ignores what the goods cost to make and what customers later claw back.
Net revenue subtracts three main items:
- Returns: goods sent back for a refund.
- Allowances: price reductions given after the sale, for example for damaged items the customer keeps.
- Discounts: trade discounts, volume rebates and early-payment discounts.
Hypothetical example: a shoemaker sells 1,000 pairs to retailers at a $100 list price, which is $100,000 gross. It grants a 10% volume rebate ($10,000) and accepts returns of 30 pairs ($3,000). Net revenue is $100,000 − $10,000 − $3,000 = $87,000. The $40 it costs to make each pair is cost of goods sold, and it reduces gross profit, not net revenue.
Under ASC 606, expected returns, rebates and price concessions are variable consideration within the transaction price, so a company recognizes revenue at the amount it expects to keep and records a refund liability for expected returns. The GAAP revenue line is therefore generally already net of these items, though some companies disclose gross sales and the deductions separately.
Principal or agent: when revenue is reported gross or net
ASC 606 (Accounting Standards Update No. 2014-09, issued in May 2014 and clarified by ASU 2016-08) replaced the earlier guidance, EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. IFRS 15 applies essentially the same principal/agent model outside the U.S.
The principal/agent question arises when identifying the performance obligations in a contract. The company asks whether its promise is to provide the specified good or service itself or to arrange for another party to provide it. If it controls the good or service before transfer to the customer, it is the principal and reports revenue gross. If it only arranges the transaction, it is the agent and reports its fee or commission as revenue, net of the amount passed to the supplier.
Indicators of control
The standard lists indicators that a company is the principal:
- It is primarily responsible for fulfilling the promise, including the acceptability of the goods or service.
- It bears inventory risk before the goods are transferred, or after transfer if the customer has a right of return.
- It has discretion in setting the price.
The older EITF 99-19 list also included credit risk and whether the company earned a fixed commission. Those were dropped as separate indicators under the current guidance. No single indicator is decisive; they support the overall control judgment.
Example: one wrench, two possible answers
Company A manufactures wrenches. It controls production, holds the inventory, picks its suppliers and sets prices. Company B runs an online marketplace that lists many suppliers’ products and states that it is not responsible for shipping or product quality. Assume (hypothetically) a customer pays $50 for a wrench and B keeps a 15% commission.
Arrangement 1: B is an agent. B never controls the wrench. A is the principal.
| Company A (principal) | Company B (agent) | |
|---|---|---|
| Revenue | $50.00 | $7.50 |
| Commission expense | $7.50 | n/a |
Arrangement 2: B buys and resells. B buys the wrench from A for $42.50, holds it in inventory and sells it at a price B sets. B now controls the wrench before the customer gets it, so B is the principal for the sale to the customer.
| Company B (principal) | |
|---|---|
| Revenue | $50.00 |
| Cost of goods sold | $42.50 |
| Gross profit | $7.50 |
B earns $7.50 in both arrangements. Its reported revenue is $7.50 in one case and $50 in the other.
What gross vs. net reporting changes
The wrench example shows the practical stakes:
- Revenue size: an agent’s top line can be a small fraction of the gross value of transactions it handles. Many platforms therefore also disclose a non-GAAP figure such as gross merchandise value or gross bookings alongside GAAP revenue.
- Margin percentages: B’s gross margin is 15% as a principal ($7.50 / $50) and 100% as an agent ($7.50 / $7.50), on identical economics.
- Valuation multiples: price-to-sales ratios are only comparable between companies that present revenue on the same basis. This matters when using revenue-based methods in business valuation.
- Gross profit, operating income and net income: these are unchanged by the presentation choice. Cash flow is unchanged too, because the same money moves either way.
For app developers selling through a storefront, the same logic applies to the platform fee. If the developer is the principal to the end customer, it reports the full sale price and books the platform’s cut as an expense. If the platform is the principal, the developer’s revenue is what the platform pays it. Which applies depends on the contract terms and who controls the sale, not on how a payout report happens to display the figures.
Sales taxes and GST collected for others
Amounts a business collects on behalf of third parties are not part of the transaction price under ASC 606 or IFRS 15. That makes them excluded from revenue. When a business records “sales net of GST,” it means the GST or VAT on invoices is booked as a liability to the tax authority, not as income. India’s Ind AS 115, which is based on IFRS 15, likewise presents revenue excluding GST. U.S. GAAP gives companies an accounting policy election to exclude sales and similar taxes from revenue, and most companies use it to avoid assessing each jurisdiction’s tax individually.
FAQs
Does "revenue" mean gross or net?
On a financial statement, revenue usually means net revenue: sales after returns, allowances and discounts. In conversation, "revenue" or "sales" may refer to gross sales. When a lender, buyer or client asks for revenue, confirm which figure they mean and whether pass-through taxes are excluded.
Is net revenue the same as net income or profit?
No. Net income is what remains after cost of goods sold, operating expenses, interest and income taxes are subtracted from net revenue. See revenue vs. profit for the full chain.
Can a company report some revenue gross and some net?
Yes. The principal/agent assessment is made for each specified good or service. A retailer can report its own inventory sales gross and third-party marketplace sales net within the same income statement.
The Bottom Line
The distinction matters to investors comparing platforms, resellers and app developers, and to anyone reading a revenue line. Identical economics can produce very different reported revenue and margins depending on who controls the sale. Comparing price-to-sales ratios or margins is only meaningful when companies present revenue on the same basis.
