Multiple Choice
Why is operating income frequently substituted for net income in the calculation of Return on Investment (ROI) and Return on Equity (ROE)?
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4. Merchandising Operations
Net Sales
Multiple Choice
Which of the following would increase net sales on a company's income statement?
A
Decreasing sales returns and allowances
B
Increasing sales allowances
C
Increasing sales discounts
D
Increasing sales returns
Verified step by step guidance1
Understand the concept of net sales: Net sales is calculated as gross sales minus sales returns, allowances, and discounts. It represents the actual revenue earned from sales after accounting for deductions.
Analyze the impact of sales returns and allowances: Sales returns and allowances reduce the gross sales figure. Decreasing sales returns and allowances would result in a higher net sales figure because fewer deductions are made.
Evaluate the effect of sales allowances: Increasing sales allowances would decrease net sales because allowances are subtracted from gross sales.
Consider the role of sales discounts: Sales discounts also reduce gross sales. Increasing sales discounts would lower net sales as more deductions are applied.
Assess the impact of sales returns: Increasing sales returns would decrease net sales because returns are subtracted from gross sales, reducing the overall revenue.
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