Multiple Choice
Which of the following sets of information would be sufficient to determine a firm's profit for a given period?
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4. Merchandising Operations
Net Sales
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Which of the following amounts would be used to calculate net sales (net revenues) for the current year?
A
Total cost of goods sold during the year
B
Total sales revenue before any deductions
C
Total sales revenue less sales returns, sales allowances, and sales discounts
D
Total cash collected from customers during the year
Verified step by step guidance1
Understand the concept of net sales: Net sales (or net revenues) represent the total sales revenue after deducting sales returns, sales allowances, and sales discounts. It reflects the actual revenue earned from sales transactions.
Identify the components required to calculate net sales: Start with the total sales revenue before any deductions. This is the gross sales amount generated during the year.
Subtract sales returns: Sales returns are the amounts refunded to customers for returned goods. Deduct these from the total sales revenue.
Subtract sales allowances: Sales allowances are reductions in the selling price due to issues like damaged goods or customer dissatisfaction. Deduct these from the total sales revenue.
Subtract sales discounts: Sales discounts are reductions in the invoice price offered to customers for early payment or other incentives. Deduct these from the total sales revenue to arrive at net sales.
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