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

Which of the following are two reasons a company might report a higher net sales figure by choosing to recognize fewer sales returns and allowances?

To comply with more conservative accounting standards.

To present stronger revenue performance and improve the appearance of profitability.

To increase the amount of cash on hand at year-end.

To reduce the company's tax liability for the period.

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Verified step by step guidance

Understand the concept of net sales: Net sales is calculated as gross sales minus sales returns, allowances, and discounts. Recognizing fewer sales returns and allowances increases net sales.

Analyze the impact of higher net sales: Higher net sales can make the company appear more profitable and financially strong, which may attract investors or improve market perception.

Consider the reasons for reporting fewer sales returns and allowances: Companies might do this to present stronger revenue performance and improve the appearance of profitability, as stated in the problem.

Evaluate the implications of conservative accounting standards: Conservative accounting standards typically require recognizing potential losses or liabilities, which would not align with reducing sales returns and allowances to inflate net sales.

Exclude irrelevant options: Increasing cash on hand or reducing tax liability are not directly related to recognizing fewer sales returns and allowances. Focus on the reasons tied to revenue performance and profitability.