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 equations best expresses the relationship between net sales and profits?

Net Profit = Net Sales + Cost of Goods Sold + Operating Expenses + Taxes

Net Profit = Net Sales - Cost of Goods Sold - Operating Expenses - Taxes

Net Sales = Net Profit + Cost of Goods Sold + Operating Expenses + Taxes

Net Sales = Net Profit - Cost of Goods Sold - Operating Expenses - Taxes

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Verified step by step guidance

Understand the components of the equation: Net Sales, Net Profit, Cost of Goods Sold (COGS), Operating Expenses, and Taxes. Net Sales represents the revenue generated from selling goods or services, while Net Profit is the remaining income after all expenses are deducted.

Recall the formula for calculating Net Profit. Net Profit is derived by subtracting all expenses (COGS, Operating Expenses, and Taxes) from Net Sales. This aligns with the equation: Net Profit = Net Sales - Cost of Goods Sold - Operating Expenses - Taxes.

Analyze the alternative equations provided. For example, the equation 'Net Profit = Net Sales + Cost of Goods Sold + Operating Expenses + Taxes' is incorrect because it adds expenses instead of subtracting them, which would inflate profits unrealistically.

Verify the relationship between Net Sales and Net Profit. Rearrange the correct equation (Net Profit = Net Sales - COGS - Operating Expenses - Taxes) to express Net Sales in terms of Net Profit: Net Sales = Net Profit + COGS + Operating Expenses + Taxes.

Compare the equations provided in the problem to identify the correct one. The correct equation is 'Net Profit = Net Sales - Cost of Goods Sold - Operating Expenses - Taxes,' as it accurately reflects the relationship between revenue and expenses in determining profit.