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 is often deducted from gross sales to calculate net sales on the income statement?

Income tax expense

Depreciation expense

Interest expense

Sales returns and allowances

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Verified step by step guidance

Understand the concept of gross sales: Gross sales represent the total revenue generated from sales before any deductions.

Learn about net sales: Net sales are calculated by subtracting certain deductions from gross sales. These deductions typically include sales returns, allowances, and discounts.

Identify the relevant deduction: Sales returns and allowances are amounts deducted from gross sales to account for returned goods or price adjustments due to defects or other issues.

Clarify why other options are incorrect: Income tax expense, depreciation expense, and interest expense are not deducted from gross sales to calculate net sales. These are separate expenses reported elsewhere on the income statement.

Apply the formula for net sales: Net Sales = Gross Sales - Sales Returns and Allowances - Discounts. This formula helps calculate the adjusted revenue figure for the income statement.