Sales revenue less cost of goods sold is called:

• A. Net Income
• B. Operating Income
• C. Net Sales
• D. Gross Profit

Answer: (D)

Verified step by step guidance

1. Understand the concept of Gross Profit: Gross Profit is the financial metric that represents the difference between Sales Revenue and the Cost of Goods Sold (COGS). It indicates the profitability of a company before accounting for operating expenses, taxes, and other costs.
2. Identify the components: Sales Revenue is the total income generated from selling goods or services, while COGS represents the direct costs associated with producing or purchasing those goods or services.
3. Apply the formula for Gross Profit: Gross Profit = Sales Revenue - Cost of Goods Sold. This formula helps calculate the amount of profit earned from core business activities.
4. Differentiate Gross Profit from other terms: Net Income includes all expenses, taxes, and interest, while Operating Income accounts for operating expenses but excludes taxes and interest. Net Sales refers to Sales Revenue after deducting returns, allowances, and discounts.
5. Recognize the importance of Gross Profit: It is a key indicator of a company's efficiency in managing production costs and pricing strategies, and it serves as the foundation for further profitability analysis.