Multiple Choice
Which of the following terms refers to the difference between revenue and cost of goods sold?
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4. Merchandising Operations
Net Sales
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Which of the following best describes net sales?
A
Total sales revenue minus sales returns, allowances, and discounts
B
Net income after taxes
C
Total sales revenue before any deductions
D
Gross profit minus operating expenses
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the actual revenue a company earns from its sales activities after accounting for deductions such as sales returns, allowances, and discounts.
Identify the components of net sales: Net sales are calculated by subtracting sales returns, allowances, and discounts from total sales revenue.
Clarify the incorrect options: Net income after taxes refers to the profit remaining after all expenses and taxes are deducted, not net sales. Total sales revenue before any deductions is simply gross sales, and gross profit minus operating expenses refers to operating income, not net sales.
Relate the correct definition to the problem: The correct description of net sales is 'Total sales revenue minus sales returns, allowances, and discounts,' as this aligns with the accounting definition.
Summarize the importance of net sales: Net sales provide a clearer picture of the revenue a company actually retains from its sales activities, making it a critical metric for financial analysis.
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