Multiple Choice
Which of the following best defines an outstanding balance in the context of net sales?
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4. Merchandising Operations
Net Sales
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Which of the following best describes how net sales are calculated on the income statement?
A
Net sales = Gross sales - Operating expenses
B
Net sales = Gross sales + Sales returns and allowances
C
Net sales = Gross sales - Sales returns and allowances - Sales discounts
D
Net sales = Gross sales + Cost of goods sold
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from sales after accounting for deductions such as sales returns, allowances, and discounts.
Identify the components involved in calculating net sales: Gross sales, sales returns and allowances, and sales discounts.
Gross sales refer to the total revenue generated from sales before any deductions.
Sales returns and allowances are reductions in revenue due to returned goods or allowances provided to customers for damaged or defective goods.
Sales discounts are reductions in revenue offered to customers as incentives for early payment or other reasons. To calculate net sales, subtract sales returns and allowances and sales discounts from gross sales using the formula: Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts.
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