Multiple Choice
Which of the following best describes how a bank typically makes a profit?
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4. Merchandising Operations
Net Sales
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Which of the following best describes 'Net Sales' on a company's income statement?
A
Total sales revenue before any deductions
B
Total sales revenue minus cost of goods sold
C
Total sales revenue minus sales returns, allowances, and discounts
D
Total cash received from customers during the period
Verified step by step guidance1
Understand the concept of 'Net Sales': Net Sales represents 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 is calculated by subtracting sales returns, allowances, and discounts from the total sales revenue.
Clarify the incorrect options: Total sales revenue before any deductions refers to 'Gross Sales,' not 'Net Sales.' Total sales revenue minus cost of goods sold refers to 'Gross Profit,' and total cash received from customers during the period is related to cash flow, not Net Sales.
Relate Net Sales to the income statement: On a company's income statement, Net Sales is typically the first line item after adjustments for returns, allowances, and discounts are made to Gross Sales.
Summarize the correct answer: The correct description of Net Sales is 'Total sales revenue minus sales returns, allowances, and discounts,' as this reflects the revenue the company retains after these deductions.
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