Multiple Choice
Which two types of expenses are typically recorded on the income statement?
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4. Merchandising Operations
Net Sales
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Which statement below accurately describes Hope's net sales?
A
Net sales are calculated by adding sales returns and allowances to total sales.
B
Net sales are the same as total sales before any deductions.
C
Net sales include only cash sales and exclude credit sales.
D
Net sales are calculated as total sales minus sales returns, allowances, and discounts.
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue a company earns from its total sales after deducting sales returns, allowances, and discounts.
Identify the components involved in calculating net sales: Total sales, sales returns, allowances, and discounts.
Recognize that sales returns refer to goods returned by customers, allowances are reductions in price due to issues like damaged goods, and discounts are reductions offered for early payment or promotional purposes.
Apply the formula for net sales: Net Sales = Total Sales - Sales Returns - Allowances - Discounts. Use this formula to calculate net sales in any scenario.
Ensure clarity in understanding that net sales are not the same as total sales, as deductions for returns, allowances, and discounts must be accounted for to arrive at the net figure.
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