Multiple Choice
In the context of net sales, what does the sales discount term '2/10, n/30' mean?
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4. Merchandising Operations
Net Sales
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23. Which of the following best describes 'Net Sales' as reported on a company's income statement?
A
Total sales revenue minus sales returns, allowances, and discounts
B
Total sales revenue minus operating expenses
C
Total sales revenue minus cost of goods sold
D
Total sales revenue before any deductions
Verified step by step guidance1
Understand the concept of 'Net Sales': Net Sales represents the actual revenue a company earns from its sales activities after accounting for certain deductions such as sales returns, allowances, and discounts.
Identify the components of Net Sales: Net Sales is calculated by subtracting sales returns, allowances, and discounts from the total sales revenue. These deductions reflect adjustments for returned goods, price reductions, or discounts offered to customers.
Clarify why other options are incorrect: Net Sales does not involve subtracting operating expenses or the cost of goods sold (COGS). These are separate components used in calculating operating income or gross profit, respectively.
Relate Net Sales to the income statement: On a company's income statement, Net Sales is typically the first line item after accounting for the deductions mentioned above. It serves as the starting point for further calculations like gross profit and operating income.
Summarize the correct answer: The best description of Net Sales is 'Total sales revenue minus sales returns, allowances, and discounts,' as this definition aligns with its calculation and presentation on the income statement.
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