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

In the calculation of net sales, interest on an investment is considered:

Part of net sales revenue

A deduction from gross sales

An operating expense

Non-operating income, not included in net sales

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Verified step by step guidance

Understand the concept of net sales: Net sales are calculated by subtracting returns, allowances, and discounts from gross sales. It represents the revenue generated from the core business operations.

Recognize the nature of interest on an investment: Interest earned on investments is classified as non-operating income because it is not directly related to the primary business activities of selling goods or services.

Clarify why interest on an investment is not part of net sales: Net sales focus solely on revenue from the sale of goods or services, excluding any income from non-operating activities such as investments.

Distinguish between operating and non-operating income: Operating income includes revenue and expenses directly related to the core business operations, while non-operating income includes items like interest, dividends, or gains from investments.

Conclude that interest on an investment is excluded from net sales: Since it is non-operating income, it does not contribute to the calculation of net sales and is reported separately in the income statement.