Multiple Choice
Why is it important for companies to use net sales rather than gross sales when preparing financial statements?
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4. Merchandising Operations
Net Sales
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If a business has revenues of $1,000 and a gross profit of $200, what is the amount of its net sales, assuming there are no sales returns or allowances?
A
$1,000
B
$800
C
$1,200
D
$200
Verified step by step guidance1
Understand the relationship between revenues, gross profit, and net sales. Net sales represent the total revenue generated from sales after deducting any sales returns, allowances, or discounts. In this case, there are no sales returns or allowances, so net sales will equal total revenues.
Recall the formula for gross profit: Gross Profit = Net Sales - Cost of Goods Sold (COGS). This formula helps us understand how gross profit is derived from net sales and COGS.
Since gross profit is given as $200 and revenues are $1,000, recognize that revenues in this case are equivalent to net sales because there are no deductions for returns or allowances.
Verify that the gross profit of $200 aligns with the given revenues of $1,000, ensuring that the calculation is consistent with the problem's assumptions.
Conclude that the net sales amount is equal to the revenues provided, which is $1,000, as there are no adjustments to the revenue figure.
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