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 situations is an example of net sales?

An employee receives a paycheck after payroll taxes and deductions are subtracted from gross salary.

A company calculates its gross profit by subtracting cost of goods sold from net sales.

A business records the total amount of cash received from customers before any deductions.

A company reports total sales of $100,000, less $5,000 in sales returns and $2,000 in sales discounts, resulting in $93,000.

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Verified step by step guidance

Understand the concept of net sales: Net sales represent the total revenue a company earns from its sales after deducting sales returns, allowances, and discounts. It is a key metric in financial accounting to measure the actual revenue generated from sales activities.

Identify the components of net sales: Net sales are calculated using the formula:

Net Sales = Gross Sales - Sales Returns - Sales Discounts

. Gross sales represent the total sales before any deductions.

Analyze the given options: The first option describes payroll deductions, which is unrelated to net sales. The second option refers to gross profit, which is calculated after determining net sales but is not itself an example of net sales. The third option refers to total cash received before deductions, which aligns with gross sales, not net sales.

Focus on the correct example: The fourth option describes a situation where total sales ($100,000) are reduced by sales returns ($5,000) and sales discounts ($2,000), resulting in net sales of $93,000. This aligns with the definition and formula for net sales.

Conclude that the correct example of net sales is the fourth option, as it demonstrates the calculation of net sales by deducting returns and discounts from total sales.