Multiple Choice
Which of the following best describes net sales?
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4. Merchandising Operations
Net Sales
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What is the financial result when a company's expenses exceed its sales (revenue)?
A
The company reports net sales.
B
The company breaks even.
C
The company incurs a net loss.
D
The company earns a net profit.
Verified step by step guidance1
Understand the concept of net income: Net income is calculated as total revenue (sales) minus total expenses. If expenses exceed revenue, the result is a negative value, which is referred to as a net loss.
Identify the key terms in the problem: 'Expenses exceed sales' indicates that the company's costs are greater than its revenue, leading to a negative financial result.
Recall the definitions: A net profit occurs when revenue exceeds expenses, a net loss occurs when expenses exceed revenue, and breaking even occurs when revenue equals expenses.
Apply the concept to the scenario: Since the problem states that expenses exceed sales, the company cannot report a net profit or break even. Instead, it incurs a net loss.
Conclude the reasoning: Based on the definitions and the scenario provided, the correct financial result is that the company incurs a net loss.
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