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

Shrink is the loss or theft of merchandise that reduces the amount of goods available for sale. Which of the following best describes 'shrink' in the context of net sales?

The loss or theft of merchandise

The total sales revenue before any deductions

The amount of cash discounts given to customers

The increase in inventory due to overstocking

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Verified step by step guidance

Understand the term 'shrink' in the context of financial accounting. Shrink refers to the loss or theft of merchandise that reduces the inventory available for sale. It is a common issue in retail and inventory management.

Analyze the options provided in the question. The goal is to identify which option best aligns with the definition of 'shrink' as it relates to net sales.

Option 1: 'The loss or theft of merchandise' directly matches the definition of shrink, as it describes the reduction in inventory due to loss or theft.

Option 2: 'The total sales revenue before any deductions' refers to gross sales, not shrink. This is unrelated to the concept of inventory loss.

Option 3: 'The amount of cash discounts given to customers' pertains to sales discounts, which are reductions in the selling price to encourage prompt payment. This is also unrelated to shrink. Option 4: 'The increase in inventory due to overstocking' describes an inventory management issue but is the opposite of shrink, as it refers to excess inventory rather than loss or theft.