Based on the information provided, which of the following best describes how to calculate Menlo Company's net sales for last month?

• A. Net sales = Total sales revenue + Cost of goods sold
• B. Net sales = Total sales revenue - Sales returns and allowances - Sales discounts
• C. Net sales = Total sales revenue + Sales returns and allowances
• D. Net sales = Total sales revenue - Operating expenses

Answer: (B)

Verified step by step guidance

1. Understand the concept of net sales: Net sales represent the actual revenue a company earns from its sales after accounting for any deductions such as sales returns, allowances, and discounts.
2. Identify the components of the formula: Net sales are calculated by starting with total sales revenue and subtracting sales returns, allowances, and discounts. This ensures that only the revenue from completed and undiscounted sales is included.
3. Analyze the incorrect options: For example, 'Net sales = Total sales revenue + Cost of goods sold' is incorrect because cost of goods sold (COGS) is not related to the calculation of net sales. Similarly, 'Net sales = Total sales revenue + Sales returns and allowances' is incorrect because returns and allowances reduce revenue, not increase it.
4. Focus on the correct formula: The correct formula is Net Sales = Total Sales Revenue - Sales Returns and Allowances - Sales Discounts. This formula accounts for all deductions that reduce the total sales revenue.
5. Apply the formula: To calculate net sales, subtract the total value of sales returns, allowances, and discounts from the total sales revenue. This will give you the net sales figure for Menlo Company.