Multiple Choice
Which of the following best describes 'net sales' on a company's income statement?
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4. Merchandising Operations
Net Sales
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Which of the following is typically included as a factor in a start-up cost estimate when calculating net sales?
A
Depreciation expense on existing assets
B
Dividends paid to shareholders
C
Interest income from investments
D
Estimated sales returns and allowances
Verified step by step guidance1
Understand the concept of net sales: Net sales is calculated as gross sales minus sales returns, allowances, and discounts. It represents the actual revenue earned from sales after accounting for these deductions.
Identify the factors that are typically included in a start-up cost estimate when calculating net sales. These factors should directly impact the revenue generated from sales, such as estimated sales returns and allowances.
Exclude unrelated items: Depreciation expense on existing assets, dividends paid to shareholders, and interest income from investments are not directly related to the calculation of net sales. These items are part of other financial metrics or statements, such as expenses, equity distributions, or non-operating income.
Focus on estimated sales returns and allowances: These are reductions in revenue due to product returns or allowances granted to customers. They are subtracted from gross sales to arrive at net sales, making them a critical factor in the calculation.
Conclude that estimated sales returns and allowances are the correct factor to include in a start-up cost estimate when calculating net sales, as they directly impact the revenue figure.
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