Multiple Choice
Which one of the following best defines net sales?
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4. Merchandising Operations
Net Sales
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Which of the following best represents 'Net Sales' for Better-Bald Inc. on its income statement?
A
Total sales revenue minus sales returns, allowances, and discounts
B
Gross profit before deducting operating expenses
C
Total cash received from customers during the year
D
Total payments made to suppliers and employees
Verified step by step guidance1
Understand the concept of 'Net Sales': Net Sales is the revenue generated from sales after deducting sales returns, allowances, and discounts. It represents the actual revenue earned from selling goods or services.
Identify the components of Net Sales: Total sales revenue is the starting point, and from this, you subtract sales returns (products returned by customers), allowances (price reductions for defective goods), and discounts (price reductions offered to customers).
Compare the options provided: Evaluate each option to determine which one aligns with the definition of Net Sales. For example, 'Gross profit before deducting operating expenses' refers to a different metric, and 'Total cash received from customers during the year' is related to cash flow, not Net Sales.
Focus on the correct option: The correct representation of Net Sales is 'Total sales revenue minus sales returns, allowances, and discounts,' as this calculation directly reflects the definition of Net Sales.
Conclude the reasoning: Eliminate the other options based on their definitions and confirm that the correct answer is the one that matches the calculation and concept of Net Sales.
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