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 are components used in calculating net sales?
A
Net income plus cost of goods sold
B
Gross sales minus sales returns, allowances, and discounts
C
Gross profit minus operating expenses
D
Total assets minus total liabilities
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from sales after deducting certain adjustments such as sales returns, allowances, and discounts.
Identify the components involved in calculating net sales: These components include gross sales, sales returns, sales allowances, and sales discounts.
Gross sales are the total sales revenue before any deductions. Sales returns refer to the value of goods returned by customers. Sales allowances are reductions in price due to issues like damaged goods, and sales discounts are reductions offered for early payment or promotional purposes.
The formula for calculating net sales is:
Review the options provided in the problem and eliminate incorrect choices based on the formula for net sales. The correct answer is the one that matches the formula: 'Gross sales minus sales returns, allowances, and discounts.'
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