Multiple Choice
Which of the following best describes how 'Net Sales' is calculated on an income statement?
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4. Merchandising Operations
Net Sales
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Profit equals the total amount of money made (net sales) minus which of the following?
A
Total assets
B
Total liabilities
C
Owner's equity
D
Total expenses
Verified step by step guidance1
Understand the concept of profit: Profit is the financial gain achieved when the revenue generated (net sales) exceeds the expenses incurred during a specific period.
Identify the components of the formula for profit: Profit is calculated as net sales minus total expenses. Net sales represent the revenue earned after deducting any returns, allowances, or discounts.
Clarify why total assets, total liabilities, and owner's equity are not subtracted: These items are part of the balance sheet and represent the financial position of the business, not the operational costs or expenses incurred during a period.
Focus on total expenses: Total expenses include all costs incurred to generate revenue, such as cost of goods sold, operating expenses, and other expenses like interest and taxes.
Apply the formula for profit: Use the formula Profit = Net Sales - Total Expenses to calculate the profit. Ensure you have accurate figures for net sales and total expenses before performing the calculation.
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