Multiple Choice
Which of the following best describes 'Net Sales'?
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4. Merchandising Operations
Net Sales
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Which of the following statements about net income is correct?
A
Net income is the amount received before any expenses or taxes are deducted.
B
Net income is the amount earned after deducting all expenses, including taxes, from total revenues.
C
Net income only includes operating expenses, not taxes.
D
Net income is the same as net sales.
Verified step by step guidance1
Understand the concept of net income: Net income is the profit a company earns after deducting all expenses, including operating expenses, interest, taxes, and other costs, from its total revenues.
Analyze the first statement: 'Net income is the amount received before any expenses or taxes are deducted.' This is incorrect because net income is calculated after all expenses and taxes are deducted, not before.
Evaluate the second statement: 'Net income is the amount earned after deducting all expenses, including taxes, from total revenues.' This is correct because it aligns with the definition of net income.
Review the third statement: 'Net income only includes operating expenses, not taxes.' This is incorrect because net income accounts for all expenses, including taxes, not just operating expenses.
Assess the fourth statement: 'Net income is the same as net sales.' This is incorrect because net sales refer to revenue after deducting sales returns, allowances, and discounts, whereas net income is the profit after all expenses are deducted.
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