Multiple Choice
Which of the following is NOT included in the calculation of net sales on a company's income statement?
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4. Merchandising Operations
Net Sales
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Which of the following would increase a company's net sales on the income statement?
A
Increasing sales returns
B
Increasing sales discounts
C
Decreasing sales returns and allowances
D
Increasing sales allowances
Verified step by step guidance1
Understand the concept of net sales: Net sales is calculated as gross sales minus sales returns, allowances, and discounts. It represents the actual revenue earned from sales after these deductions.
Analyze the impact of sales returns: Sales returns occur when customers return goods. Increasing sales returns would reduce net sales, while decreasing sales returns would increase net sales.
Evaluate the effect of sales allowances: Sales allowances are reductions in price due to product defects or other issues. Increasing sales allowances would reduce net sales, while decreasing sales allowances would increase net sales.
Consider sales discounts: Sales discounts are reductions in price offered to customers for early payment or other reasons. Increasing sales discounts would reduce net sales, while decreasing sales discounts would increase net sales.
Conclude that decreasing sales returns and allowances would increase net sales, as it reduces the deductions from gross sales, thereby increasing the revenue reported on the income statement.
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