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

Given that Lucia Company has set standard costs per unit for direct materials and direct labor, which of the following best describes how Net Sales is calculated on the income statement?

Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts

Net Sales = Gross Sales - Operating Expenses

Net Sales = Gross Sales + Cost of Goods Sold

Net Sales = Gross Sales - Direct Materials Cost - Direct Labor Cost

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Verified step by step guidance

Understand the concept of Net Sales: Net Sales represents the revenue generated from sales after accounting for deductions such as sales returns, allowances, and discounts. It is a key figure in the income statement used to assess the company's actual revenue from sales activities.

Identify the components of Gross Sales: Gross Sales refers to the total sales revenue before any deductions. It includes all sales transactions made by the company.

Learn about Sales Returns and Allowances: Sales Returns are the refunds given to customers for returned goods, while Sales Allowances are reductions in the selling price due to issues like damaged goods. These deductions reduce the Gross Sales to arrive at Net Sales.

Understand Sales Discounts: Sales Discounts are reductions in the selling price offered to customers for early payment or other promotional reasons. These discounts also reduce Gross Sales to calculate Net Sales.

Combine the deductions: To calculate Net Sales, subtract Sales Returns and Allowances, as well as Sales Discounts, from Gross Sales. The formula is: Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts.