Multiple Choice
A company reports the following information: Gross Sales of \$500,000, Sales Returns and Allowances of \$20,000, and Sales Discounts of \$10,000. What is the Net Sales amount?
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4. Merchandising Operations
Net Sales
Multiple Choice
The net working capital invested in a project is generally:
A
the difference between current assets and current liabilities required for the project
B
the total amount of fixed assets purchased for the project
C
the sum of all project revenues over its lifetime
D
the amount of long-term debt used to finance the project
Verified step by step guidance1
Understand the concept of net working capital (NWC): Net working capital is defined as the difference between current assets and current liabilities. It represents the short-term liquidity available to a business for its operations.
Identify the components of current assets: Current assets typically include cash, accounts receivable, inventory, and other assets expected to be converted into cash within a year.
Identify the components of current liabilities: Current liabilities include accounts payable, short-term debt, accrued expenses, and other obligations due within a year.
Relate net working capital to the project: For a specific project, net working capital is calculated as the difference between the current assets and current liabilities required specifically for the project. This ensures the project has sufficient liquidity to operate effectively.
Eliminate incorrect options: The other options provided (total fixed assets, sum of project revenues, and long-term debt) do not align with the definition of net working capital. Focus on the correct definition to answer the question accurately.
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