Multiple Choice
Which of the following actions would directly increase a company's net sales, potentially leading to a higher stock price?
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4. Merchandising Operations
Net Sales
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Which of the following best defines 'Net Sales' in financial accounting?
A
Total sales revenue minus sales returns, allowances, and discounts.
B
Total sales revenue before any deductions.
C
Total sales revenue plus other income.
D
Total sales revenue minus cost of goods sold.
Verified step by step guidance1
Understand the term 'Net Sales' in financial accounting. It represents the actual revenue earned from sales after accounting for certain deductions.
Identify the components that are deducted from total sales revenue to calculate net sales. These include sales returns (products returned by customers), allowances (price reductions for defective goods), and discounts (reductions in price offered to customers).
Recognize that 'Net Sales' does not include other income or cost of goods sold. It strictly pertains to sales revenue after the mentioned deductions.
Compare the given options to determine which one aligns with the definition of 'Net Sales'. The correct definition should include the deductions for sales returns, allowances, and discounts.
Conclude that the best definition of 'Net Sales' is: Total sales revenue minus sales returns, allowances, and discounts.
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