Gross loss occurs when the cost of goods sold (COGS) exceeds the net sales of a company. 

COGS represents the direct costs associated with producing or manufacturing goods, including the cost of materials and direct labor. 

Net sales, on the other hand, are the total sales revenue minus any returns, allowances, and discounts.

When the cost of goods sold is higher than the net sales, it indicates that the company is not generating enough revenue to cover the direct costs of producing the goods. 

This results in a negative gross profit, which is commonly referred to as a gross loss.