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

Based on the information provided, which of the following best describes how to calculate Menlo Company's net sales for last month?

Net sales = Total sales revenue + Cost of goods sold

Net sales = Total sales revenue - Sales returns and allowances - Sales discounts

Net sales = Total sales revenue + Sales returns and allowances

Net sales = Total sales revenue - Operating expenses

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Verified step by step guidance

Understand the concept of net sales: Net sales represent the actual revenue a company earns from its sales after accounting for any deductions such as sales returns, allowances, and discounts.

Identify the components of the formula: Net sales are calculated by starting with total sales revenue and subtracting sales returns, allowances, and discounts. This ensures that only the revenue from completed and undiscounted sales is included.

Analyze the incorrect options: For example, 'Net sales = Total sales revenue + Cost of goods sold' is incorrect because cost of goods sold (COGS) is not related to the calculation of net sales. Similarly, 'Net sales = Total sales revenue + Sales returns and allowances' is incorrect because returns and allowances reduce revenue, not increase it.

Focus on the correct formula: The correct formula is Net Sales = Total Sales Revenue - Sales Returns and Allowances - Sales Discounts. This formula accounts for all deductions that reduce the total sales revenue.

Apply the formula: To calculate net sales, subtract the total value of sales returns, allowances, and discounts from the total sales revenue. This will give you the net sales figure for Menlo Company.