Multiple Choice
Net income appears on the end-of-period spreadsheet in the:
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4. Merchandising Operations
Net Sales
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When purchases equal the invoice amount, which of the following is true regarding net sales?
A
Net sales increase by the amount of purchases.
B
Net sales are unaffected by the purchase amount.
C
Net sales decrease by the amount of purchases.
D
Net sales are always equal to purchases.
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from selling goods or services, minus any returns, allowances, and discounts. Purchases, on the other hand, refer to the acquisition of inventory or goods for resale and are not directly related to net sales.
Analyze the relationship between purchases and net sales: Purchases are recorded as part of inventory or cost of goods sold (COGS) and do not directly impact net sales. Net sales are calculated based on sales transactions, not purchases.
Evaluate the options provided: Consider each statement in the context of financial accounting principles. For example, 'Net sales increase by the amount of purchases' is incorrect because purchases do not affect net sales directly.
Focus on the correct answer: 'Net sales are unaffected by the purchase amount' is correct because purchases are part of inventory management and cost accounting, not sales revenue.
Conclude with the reasoning: Purchases are recorded separately from sales in financial statements, and net sales remain unaffected by the amount of purchases made.
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