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 formulas is used to calculate the net income ratio?

\( \text{Net Income Ratio} = \frac{\text{Net Income}}{\text{Net Sales}} \)

\( \text{Net Income Ratio} = \frac{\text{Gross Profit}}{\text{Net Sales}} \)

\( \text{Net Income Ratio} = \frac{\text{Net Sales}}{\text{Net Income}} \)

\( \text{Net Income Ratio} = \frac{\text{Net Sales}}{\text{Total Assets}} \)

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Verified step by step guidance

Step 1: Understand the concept of Net Income Ratio. It is a financial metric used to measure the profitability of a company by comparing its net income to its net sales.

Step 2: Analyze the formula options provided in the problem. The correct formula for Net Income Ratio should involve dividing Net Income by Net Sales, as it reflects the proportion of income generated from sales.

Step 3: Eliminate incorrect options by checking their logical consistency. For example, dividing Net Sales by Net Income or Net Sales by Total Assets does not align with the definition of Net Income Ratio.

Step 4: Confirm the correct formula: \( \text{Net Income Ratio} = \frac{\text{Net Income}}{\text{Net Sales}} \). This formula directly measures the efficiency of converting sales into net income.

Step 5: Apply this formula in practice by substituting the values of Net Income and Net Sales from financial statements to calculate the Net Income Ratio for a company.