Multiple Choice
The contribution margin equals sales minus all ______ expenses.
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4. Merchandising Operations
Net Sales
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Sales returns and allowances is increased when:
A
Sales discounts are granted for early payment.
B
Customers return previously purchased goods.
C
A company makes a cash sale.
D
Inventory is purchased from suppliers.
Verified step by step guidance1
Understand the concept of 'Sales Returns and Allowances': This account is a contra-revenue account that reduces total sales revenue. It is used to record situations where customers return goods or receive allowances for defective or unsatisfactory products.
Analyze the given options: Evaluate each option to determine whether it directly impacts the 'Sales Returns and Allowances' account.
Option 1: 'Sales discounts are granted for early payment' - This relates to 'Sales Discounts,' another contra-revenue account, but it does not involve the return of goods or allowances for defective products. Therefore, it does not affect 'Sales Returns and Allowances.'
Option 2: 'Customers return previously purchased goods' - This directly impacts 'Sales Returns and Allowances' because it involves the return of goods, which reduces the company's revenue.
Option 3 and 4: 'A company makes a cash sale' and 'Inventory is purchased from suppliers' - These transactions do not involve returns or allowances. A cash sale increases revenue, and purchasing inventory affects the inventory account, not 'Sales Returns and Allowances.'
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