# What Are Proceeds? (With Types, Examples and How To Record Them)

By Indeed Editorial Team

Published August 4, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When you sell a product, you might encounter a figure called proceeds. Calculating proceeds for a business helps to understand both the value of sold assets and the actual amount that's earned when selling. Learning about gross and net proceeds can help you accurately record your assets and plan for future expenses with similar sales. In this article, we define proceeds, discuss the difference between gross and net proceeds and examine types and examples of benefits.

## What are proceeds?

Proceeds are any cash a company or individual earns when selling goods or services. They are similar to profits, except that profit is the total amount of cash flow a business earns minus expenditures, while proceeds measure the amount earned from specific sales. You can calculate proceeds by multiplying the price of goods sold by the number of units sold. There are two figures that companies use when recording proceeds:

• Gross proceeds: Gross proceeds are the total amounts earned when selling a product or service, including expenses and fees.

• Net proceeds: Net proceeds are the amounts earned when selling a product or service minus expenses and fees.

Read more: Net Proceeds: Definition and Calculation Instructions

## What is the difference between gross and net proceeds?

The difference between gross and net proceeds relies on costs, such as taxes, expenses and commissions. Gross proceeds refer to the total amount of cash, including the costs. Net proceeds consist of proceeds after the calculation and deduction of those costs. For example, if a company earned \$10,000 in proceeds, but spent \$1,000 in fees, the gross amount would be \$10,000 and the net amount would be \$9,000. Other differences between gross and net proceeds include:

• Amount: Gross is more likely to be higher than net profits, assuming there are fees and expenses. If not, these numbers might be the same.

• Use: Companies can use the net proceeds figure to identify how much they spend on fees, such as commission, taxes or technology. Gross proceeds can show companies their maximum earning potential.

## Types of proceeds

Professionals calculate proceeds in certain industries, such as real estate and finance. Here's how some of the most common types of proceeds work:

### Real estate net proceeds

When selling a house, the total offer you accept would be the gross proceeds. When recording transactions on a balance sheet, this amount appears on the credit side. This amount may be higher than the amount a seller receives because of several factors, including:

• Escrow fees

• Real estate agent fees

• Closing costs

• Referral fees

• Transfer fees

• Outstanding mortgages

• Inspection costs

• Repairs

You deduct these expenses to calculate the net proceeds of selling a house. If the net proceeds are negative, sellers pay money to cover the costs or request a short-sale approval.

Related: Finder's Fees vs. Referral Fees: What's the Difference?

### Capital gains net proceeds

A capital gain is the amount of money an asset holder earns while holding a stock that increases in value. This is common in shares, property, mutual funds or businesses. Depending on your tax bracket, individuals and corporations may pay taxes on these capital gains. The gross proceeds amount minus taxes paid would be the net proceeds. Other expenses, such as commission fees, might affect the net proceeds as well.

Related: Return vs. Yield: What's the Difference?

## How to record proceeds

There are a few steps you can take to record proceeds:

### 1. Document the sale

At the time of the transaction, record the total sale amount or the credit side of the balance sheet. This number is important because you may need to calculate taxes on any capital gains or tally depreciation. Include the date and full amount before deducting expenses and fees.

Related: How To Create a Balance Sheet (With Examples and Tips)

### 2. Calculate depreciation

Depreciation is the value an asset loses over time. For example, cars often decrease in value as their mileage increases. Individuals might record the depreciation expense at this stage or the value the asset might have lost. This helps provide businesses a realistic picture of how many proceeds they've earned. Recording depreciation provides the seller an accurate update of how much the asset was worth when selling and how much net proceeds you earn.

### 3. Record other expenses

Record any other expenses and fees on the debit side of your balance sheet. Taxes, commission, repairs and consultation fees all reduce the total amount of cash assets a company earns, which is why it's important to include them. Add the cost of all expenses related to the sold asset to understand the total expense amount.

Related: Expenditures vs. Expenses: Types and Key Differences

### 4. Compute your net proceeds

Compute your net proceeds by subtracting depreciation expenses and any other costs from the gross proceeds. This provides you with the amount that you have earned when selling your asset. This figure, if positive, appears on the credit, or asset, section of your balance sheet and is typically less than the gross proceeds figure.

## Benefits of calculating proceeds

There are several important benefits to calculating and recording proceeds:

• Documenting the value of an asset at different points in time. This helps to understand how much you earn in relation to the actual cost, providing a more accurate view of earnings.

• Having a better prediction of expenses and costs when selling assets in the future. If you purchase an asset later, you can estimate how its value might change and what costs you can expect to earn.

• Recording depreciation. Understanding the depreciation of an asset can help you predict future depreciation. For example, you may choose to purchase a new asset later, knowing its value remains high.

• Creating an accurate record of your assets. If you only record gross proceeds, you might assume you've earned higher than you did. Recording net and gross proceeds ensures you record all expenses and earnings, which can build trust between you and possible investors.

## Example of calculating proceeds in real estate

Here's an example of calculating gross and net proceeds in real estate:

John, the owner of Store Properties, Incorporated is selling a storefront in a strip mall. He lists the property for \$200,000. His buyer requests he fixes the sidewalk in front of the store, a total expense of \$10,000. In addition to this, he must pay a 2% commission to his realtor and cover the \$4,000 inspection costs.

The gross proceeds of this sale are \$200,000. The total expenses are \$18,000, and the net proceeds are \$182,000. Assuming his property hasn't decreased in value, the increase in his assets is \$182,000.

## Example of calculating proceeds in capital gains

Here's an example of calculating gross and net proceeds in capital gains:

Shauna bought 100 shares of a stock at \$5 a share, totaling \$500. Shauna paid a \$20 commission fee, which brings the total amount to \$520. When selling the stocks six months later, she sold them for \$8 a share, earning \$800. Her capital gains are \$280. She paid 10% taxes on her capital gains.

Shauna's gross proceeds for this transaction would be \$800, while the net proceeds would be \$772 after she records the commission fee and taxes as expenses.