Multiple Choice
Which of the following best describes how total revenue is calculated in relation to net sales?
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4. Merchandising Operations
Net Sales
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Which of the following best describes 'net sales' on a company's income statement?
A
Total sales revenue before any deductions
B
Total sales revenue minus cost of goods sold
C
Total sales revenue minus sales returns, allowances, and discounts
D
Total cash received from customers during the period
Verified step by step guidance1
Understand the concept of 'net sales': Net sales represent the revenue a company earns from its sales activities after accounting for deductions such as sales returns, allowances, and discounts.
Identify the components of net sales: Net sales are calculated by subtracting sales returns, allowances, and discounts from total sales revenue.
Clarify the difference between net sales and other terms: Net sales are not the same as total sales revenue (which is before deductions) or total cash received (which includes other factors like timing and accounts receivable).
Review the formula for net sales: Net Sales = Total Sales Revenue - Sales Returns - Sales Allowances - Sales Discounts. This formula helps to calculate the adjusted revenue figure.
Apply the concept to the options provided: The correct description of net sales is 'Total sales revenue minus sales returns, allowances, and discounts,' as it aligns with the definition and formula.
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