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 is the correct equation for profit?

Profit = Net Sales - Cost of Goods Sold - Expenses

Profit = Net Sales \times Cost of Goods Sold

Profit = Net Sales + Cost of Goods Sold + Expenses

Profit = Net Sales - Expenses + Cost of Goods Sold

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Verified step by step guidance

Understand the concept of profit: Profit represents the financial gain achieved when revenues exceed expenses. It is calculated by subtracting all costs and expenses from the revenue generated.

Identify the components of the profit equation: Net Sales refers to the total revenue after deducting returns, allowances, and discounts. Cost of Goods Sold (COGS) represents the direct costs of producing goods sold by the company. Expenses include operating costs, administrative costs, and other indirect costs.

Analyze the given options: Evaluate each equation to determine whether it correctly accounts for the relationship between Net Sales, COGS, and Expenses. The correct equation should subtract both COGS and Expenses from Net Sales to calculate profit.

Eliminate incorrect options: For example, 'Profit = Net Sales × Cost of Goods Sold' is incorrect because profit is not calculated by multiplying Net Sales and COGS. Similarly, 'Profit = Net Sales + Cost of Goods Sold + Expenses' is incorrect because it adds costs instead of subtracting them.

Select the correct equation: The correct formula for profit is 'Profit = Net Sales - Cost of Goods Sold - Expenses,' as it properly accounts for the deduction of all costs and expenses from Net Sales to determine the financial gain.