Multiple Choice
Which of the following best describes 'Net Sales' on a company's income statement?
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4. Merchandising Operations
Net Sales
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Which of the following best describes how to calculate net sales for a company?
A
Net Sales = Total Sales - Operating Expenses
B
Net Sales = Total Sales - Sales Returns and Allowances - Sales Discounts
C
Net Sales = Total Sales + Cost of Goods Sold
D
Net Sales = Gross Profit - Sales Returns
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 involved in calculating Net Sales: Total Sales, Sales Returns and Allowances, and Sales Discounts.
Recognize that Net Sales is calculated by subtracting Sales Returns and Allowances and Sales Discounts from Total Sales. This formula ensures that the revenue reflects the actual amount earned after adjustments.
Avoid confusion with other terms: Net Sales is not affected by Operating Expenses, Cost of Goods Sold, or Gross Profit. These are separate financial metrics used for different purposes.
Apply the formula for Net Sales: \( \text{Net Sales} = \text{Total Sales} - \text{Sales Returns and Allowances} - \text{Sales Discounts} \). This formula provides the accurate calculation for Net Sales.
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