Multiple Choice
Which of the following statements about the contribution margin ratio is true?
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4. Merchandising Operations
Net Sales
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Which of the following best describes revenue in the context of net sales?
A
The total amount earned from sales before deducting returns, allowances, and discounts.
B
The amount remaining after all operating expenses have been subtracted from gross profit.
C
The cash received from customers after deducting all liabilities.
D
The profit earned after taxes and interest are deducted.
Verified step by step guidance1
Step 1: Understand the concept of revenue in financial accounting. Revenue refers to the total amount earned from sales of goods or services before any deductions such as returns, allowances, or discounts.
Step 2: Differentiate revenue from other financial terms. For example, net sales is calculated by subtracting returns, allowances, and discounts from revenue, while gross profit is revenue minus the cost of goods sold.
Step 3: Analyze the options provided in the question. Identify which option aligns with the definition of revenue as the total amount earned from sales before deductions.
Step 4: Eliminate incorrect options. For instance, options describing revenue as cash received after deducting liabilities or profit after taxes and interest are not accurate definitions of revenue.
Step 5: Select the correct answer that matches the definition of revenue in the context of net sales, which is 'The total amount earned from sales before deducting returns, allowances, and discounts.'
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