Net and Gross Prices

Net vs Gross Pricing

Stock buy and sell prices can be set either to net prices (i.e. VAT exclusive) or gross prices (i.e. inclusive of VAT) using System Values.

Whilst Khaos Control can use both net and gross prices, the default value used on Sales Orders is determined by the Sell prices are net checkbox on the Order Processing tab within System Values. This checkbox setting also affects the [ Stock | Details | Properties ] screen. When ticked, the sell price description is shown as 'Sell Price (N)' otherwise 'Sell Price (G)' is displayed.

If the Sell prices are net checkbox is ticked, the Sell Price is copied to the net column when a Stock Item is added to a Sales Order. If not ticked, the Sell Price is copied to the gross column. We suggest clients who retail principally to consumers (i. e. B2C) leave this checkbox empty and enter a gross price (i.e. including VAT) into the Sell Price field for each Stock Item.

In a similar way, ticking the Purchase prices are net checkbox on the Purchasing tab within System Values alters the buy price description from 'Buy Price (G)' to 'Buy Price (N)' and changes the column that prices are copied into on Purchase Orders from gross to net.
Note: If your purchase system is set to use gross prices, the purchase price from a supplier should be configured as gross (i.e. including VAT), even where the supplier is not subject to VAT (e.g. based in USA).

As stock items are entered onto a Sales Order, Khaos Control calculates and displays other values on that line; for example, with gross pricing, adding 5 items priced at £20.41 results in a total of £102.05. If net pricing was in use, adding 5 items priced at £17.01 would result in a total of £85.05 to which VAT @ 20% is then added, a grand total of £102.06.

Sales Invoice Calculation Method

Khaos Control calculates the amounts to be shown on Sales Invoices by one of two methods:

• Gross units
• Net unit

The default sales invoice calculation method is determined by the setting of the Purchase prices are net checkbox.

Calculations based on Gross Unit Prices

On each order line, the gross unit price (taking into account any discounts) is multiplied by the quantity to produce the gross total value of each line.

We recommend using the gross unit calculation method on retail and other B2C sales
where you wish to provide your customer with a till receipt or simple VAT invoice
showing gross values, not net amounts.

With Gross Unit Pricing, Total VAT is calculated by working out the VAT due on each item, multiplying this by the quantity sold to give an order line total and then adding these up, as shown in the following example:

In the above example, all order lines were subject to VAT @ 20% and it would therefore have been equally valid to calculate the total VAT by multiplying the Total Value by the VAT fraction of 1/6.

Note: Figures printed on Sales Invoice reports generated using the gross calculation method may appear confusing as the "Net Total" figure shown on each line (see € in above example) is calculated by subtracting the total VAT calculated for each line from the line's Gross Total.

Calculations based on Net Unit Prices

On each order line, the net unit price (taking into account any discounts) is multiplied by the quantity to produce the net total value of each line.

We recommend using the net unit calculation method on all B2B sales (to other companies, etc.)
where you wish to provide a detailed VAT invoiceshowing net amounts.

With Net Unit Pricing, Total VAT is calculated by adding up all the net line totals and multiplying by 20%, as shown in the following example:

As can be seen, the total VAT is a couple of pence higher; the Order Total is also higher.

Setting Sales Invoice Calculation Method

The default system value for net/gross pricing can be overridden for Sales Orders placed by all Customers within a Customer Class by setting the 'Calculation Method' for that class to either Net Unit or Gross Unit on the [ System Data | Customer Class ] screen. This is useful when you deal with both retail and trade customers, as retail would normally be set to calculate on Gross Unit and trade could be set to calculate on Net Unit.

The calculation method can also be changed on an individual Sales Order using the 'Calc' option on the [ Sales Orders | Detail | Additional ] tab.

If the "Price List is Net" checkbox is checked and Gross Sell Price is defined then the calculated price on the sales order will be:

• Nothing specified = Gross
• Amount specified = Net
• Discount with no Amount = Gross
• Discount with Amount = Net
• Base Markup % = Net
• Massaged Markup % = Net

When the markup percentage is used then the user should consider the whether their system uses Net or Gross Buy Prices as this will affect the sell price, for example:

• if Gross Buy = £150 with 10% markup so a net price of £165 or £198 inc VAT.
• if Net Buy = £125 (150 less vat) with 10% markup so a net price of £137.50 or £165 inc VAT.

If your business is primarily geared towards Businesses or (Retail) Customers please consider following system setups;

* - If your business is primarily geared towards Businesses or (Retail) Customers but do occasionally sell the other then please consider the following setup.

See Also

• Promotions Overview
• System Data overview
• Sales Orders screen
• Stock screen