Multiple Choice
Which of the following is the correct formula for calculating net sales?
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4. Merchandising Operations
Net Sales
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Which of the following best describes how net sales are calculated on the income statement?
A
Net sales = Gross sales + Cost of Goods Sold
B
Net sales = Gross sales - Sales returns and allowances - Sales discounts
C
Net sales = Gross sales - Cost of Goods Sold
D
Net sales = Gross sales + Sales returns and allowances + Sales discounts
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from sales after accounting for deductions such as sales returns, allowances, and discounts.
Identify the components of gross sales: Gross sales refer to the total sales revenue before any deductions are applied.
Recognize the deductions: Sales returns and allowances are reductions in revenue due to returned goods or price adjustments, while sales discounts are reductions offered to customers for early payment or other incentives.
Apply the formula for net sales: Net sales are calculated as Gross Sales - Sales Returns and Allowances - Sales Discounts.
Ensure clarity in the calculation: By subtracting these deductions from gross sales, you arrive at the net sales figure, which accurately reflects the revenue earned after adjustments.
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