Multiple Choice
Which of the following statements accurately describes net sales?
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4. Merchandising Operations
Net Sales
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Which of the following would increase the value of net sales on a company's income statement?
A
Increasing sales returns
B
Increasing sales discounts
C
Increasing sales allowances
D
Decreasing sales returns and allowances
Verified step by step guidance1
Understand the concept of net sales: Net sales is calculated as gross sales minus sales returns, sales allowances, and sales discounts. It represents the actual revenue earned by the company after accounting for these deductions.
Analyze the impact of sales returns: Sales returns occur when customers return goods, reducing the company's revenue. Decreasing sales returns means fewer goods are returned, which increases net sales.
Examine the effect of sales allowances: Sales allowances are reductions in price given to customers due to product defects or other issues. Decreasing sales allowances means fewer price reductions, which increases net sales.
Consider sales discounts: Sales discounts are reductions in price offered to customers for early payment or other incentives. Increasing sales discounts would reduce net sales, so decreasing discounts would help maintain or increase net sales.
Conclude that decreasing sales returns and allowances directly increases net sales, as fewer deductions are made from gross sales.
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