Premium Audit: Definition of Sales
The definition of sales taken from the Insurance Services Office Commercial Lines Manual is as follows:
- Definition – The gross amount charged by the named insured, concessionaires of the named insured or by others trading under the insured’s name for:
- All goods or products, sold or distributed;
- Operations performed during the policy period;
- Rentals; and
- Dues or fees.
- Inclusions – The following items shall not be deducted from gross sales:
- Foreign exchange discounts;
- Freight allowance to customers;
- Total sales of consigned goods and warehouse receipts;
- Trade or cash discounts;
- Bad debts; and
- Repossession of items sold on installments (amount actually collected).
- Exclusions – The following items shall be deducted from gross sales:
- Sales or excise taxes which are collected and submitted to a governmental division;
- Credits for repossessed merchandise and products returned.
- Allowances for damaged and spoiled goods;
- Finance charges for items sold on installments;
- Freight charges on sales if freight is charged as a separate item on customer’s invoice;
- Royalty income from patent rights or copyrights which are not product sales, and
- Rental receipts for products liability coverage only.