Multiple Choice
In the context of financial accounting, which of the following best describes 'net sales'?
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4. Merchandising Operations
Net Sales
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When calculating net sales for BRS Corporation, which of the following should be subtracted from total sales to arrive at the correct figure?
A
Accounts receivable and inventory
B
Sales returns, sales allowances, and sales discounts
C
Cost of goods sold and operating expenses
D
Interest income and dividend revenue
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from total sales after deducting certain items that reduce the actual revenue earned.
Identify the items that should be subtracted from total sales: These include sales returns (products returned by customers), sales allowances (price reductions for defective or damaged goods), and sales discounts (reductions in price for early payment or promotional discounts).
Recognize that accounts receivable and inventory are not subtracted from total sales to calculate net sales. These are balance sheet items and do not directly impact the calculation of net sales.
Understand that cost of goods sold and operating expenses are part of the income statement but are not deducted from total sales to calculate net sales. They are used to calculate gross profit and operating income instead.
Exclude interest income and dividend revenue from the calculation of net sales. These are non-operating revenues and are not related to the core sales activities of the business.
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