Multiple Choice
Which of the following best describes 'net sales' in financial accounting?
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4. Merchandising Operations
Net Sales
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The total amount of earnings made over a one-year period after all deductions, such as returns, allowances, and discounts, have been taken is called:
A
Net Sales
B
Net Income
C
Operating Income
D
Gross Sales
Verified step by step guidance1
Understand the concept of Net Sales: Net Sales refers to the total revenue generated from sales after deducting returns, allowances, and discounts. It represents the actual earnings from sales activities.
Differentiate between the terms provided: Gross Sales is the total revenue before any deductions, Net Income is the profit after all expenses, and Operating Income is the profit from core business operations.
Identify the key deductions mentioned in the problem: Returns, allowances, and discounts are subtracted from Gross Sales to calculate Net Sales.
Relate the definition of Net Sales to the problem: The problem specifies earnings after all deductions, which aligns with the definition of Net Sales.
Conclude that the correct term for the earnings described in the problem is Net Sales, based on the explanation and comparison of terms.
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