Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Which of the following best describes how 'Net Sales' is calculated on an income statement?

Net Sales = Gross Sales - Cost of Goods Sold

Net Sales = Gross Sales + Sales Returns and Allowances + Sales Discounts

Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts

Net Sales = Gross Sales + Cost of Goods Sold

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Verified step by step guidance

Understand the concept of 'Net Sales': Net Sales represents the revenue generated from sales after accounting for deductions such as sales returns, allowances, and discounts. It provides a clearer picture of the actual revenue earned from sales activities.

Identify the components of Gross Sales: Gross Sales refers to the total sales revenue before any deductions. It includes all sales transactions made during the period.

Recognize the deductions: Sales Returns and Allowances are reductions in sales revenue due to returned goods or allowances provided to customers. Sales Discounts are reductions in the selling price offered to customers for early payment or other reasons.

Apply the formula for Net Sales: Net Sales is calculated by subtracting Sales Returns and Allowances and Sales Discounts from Gross Sales. The formula is: Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts.

Avoid confusion with incorrect formulas: Net Sales is not calculated by adding Sales Returns, Allowances, or Discounts to Gross Sales, nor does it involve subtracting the Cost of Goods Sold. Ensure you use the correct formula to calculate Net Sales.