Multiple Choice
Shrink is the loss or theft of merchandise that reduces the amount of goods available for sale. Which of the following best describes 'shrink' in the context of net sales?
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4. Merchandising Operations
Net Sales
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1. Which of the following best defines 'Net Sales' for a business?
A
The total amount of all sales before any deductions.
B
The amount a business receives from the sale of merchandise after deducting sales returns, allowances, and discounts.
C
The amount a business receives from the sale of merchandise including sales tax.
D
The profit earned from selling merchandise.
Verified step by step guidance1
Understand the term 'Net Sales': Net Sales refers to the revenue a business earns from selling goods or services after accounting for deductions such as sales returns, allowances, and discounts.
Identify the key components of Net Sales: These include gross sales (total sales before deductions), sales returns (products returned by customers), allowances (price reductions for defective goods), and discounts (price reductions for early payment or promotions).
Eliminate incorrect options: The first option refers to gross sales, not net sales. The third option incorrectly includes sales tax, which is not part of Net Sales. The fourth option confuses Net Sales with profit, which is calculated after deducting all expenses.
Focus on the correct definition: Net Sales is the amount a business receives from the sale of merchandise after deducting sales returns, allowances, and discounts.
Apply this understanding to similar problems: Always remember to subtract returns, allowances, and discounts from gross sales to calculate Net Sales.
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