Which of the following best describes 'Net Sales' on a company's income statement?

• A. Total sales revenue minus operating expenses
• B. Total sales revenue minus cost of goods sold
• C. Total sales revenue minus sales returns, allowances, and discounts
• D. Total sales revenue before any deductions

Answer: (C)

Verified step by step guidance

1. Understand the concept of 'Net Sales': Net Sales represents the actual revenue a company earns from its sales activities after accounting for deductions such as sales returns, allowances, and discounts.
2. Identify the components of Total Sales Revenue: Total Sales Revenue is the gross amount earned from selling goods or services before any deductions.
3. Learn about deductions: Sales returns are refunds given to customers for returned goods, allowances are reductions in price due to product defects or other issues, and discounts are reductions in price offered to customers for early payment or promotional purposes.
4. Calculate Net Sales: To determine Net Sales, subtract the total amount of sales returns, allowances, and discounts from the Total Sales Revenue. The formula is: $\mathrm{Net}\mathrm{Sales}=\mathrm{Total}\mathrm{Sales}\mathrm{Revenue}-\mathrm{Sales}\mathrm{Returns}-\mathrm{Allowances}-\mathrm{Discounts}$
5. Recognize the importance of Net Sales: Net Sales is a key metric on the income statement as it reflects the true revenue generated by the company after accounting for adjustments, providing a clearer picture of operational performance.