Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

A company sold a machine for $15,000. How should this transaction be reported in the calculation of net sales on the income statement?

It should be added to net sales as part of total sales revenue.

It should be included in net sales only if the machine was sold at a loss.

It should not be included in net sales, as it is not part of regular sales revenue.

It should be deducted from net sales as a sales return.

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Verified step by step guidance

Understand the concept of net sales: Net sales represent the revenue generated from the sale of goods or services that are part of the company's core operations, minus any sales returns, allowances, and discounts.

Identify the nature of the transaction: The sale of a machine is not part of the company's regular sales revenue. It is considered a disposal of an asset, which is reported separately in the financial statements under 'Other Income' or 'Gain/Loss on Sale of Assets.'

Clarify why it should not be included in net sales: Since net sales only include revenue from the company's primary business activities, the sale of a machine does not qualify as part of net sales. Including it would misrepresent the company's operational performance.

Determine the correct reporting: The proceeds from the sale of the machine should be reported in the income statement under a separate section, such as 'Other Income' or 'Non-Operating Income,' depending on whether there is a gain or loss on the sale.

Review the impact on financial statements: Ensure that the transaction is excluded from net sales and properly classified to maintain accurate reporting of the company's financial performance and compliance with accounting standards.