Multiple Choice
Which of the following is calculated as revenues minus expenses?
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4. Merchandising Operations
Net Sales
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Which of the following is NOT true regarding a sales discount when calculating net sales?
A
A sales discount encourages early payment by customers.
B
A sales discount reduces the amount of revenue recognized.
C
A sales discount does not increase net sales.
D
A sales discount is subtracted from gross sales to determine net sales.
Verified step by step guidance1
Understand the concept of a sales discount: A sales discount is a reduction in the amount owed by a customer if payment is made within a specified period. It is used to encourage early payment and improve cash flow.
Review the impact of a sales discount on revenue: A sales discount reduces the amount of revenue recognized because the customer pays less than the original invoice amount.
Analyze how net sales are calculated: Net sales are determined by subtracting sales discounts, returns, and allowances from gross sales. This ensures that the reported revenue reflects the actual amount earned after adjustments.
Evaluate the statement 'A sales discount does not increase net sales': This is true because a sales discount reduces gross sales, which in turn decreases net sales. It does not contribute to an increase in net sales.
Confirm the correct answer: Based on the analysis, the statement 'A sales discount does not increase net sales' is correct, as it aligns with the definition and calculation of net sales.
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