In the calculation of net sales, interest on an investment is considered:

• A. Part of net sales revenue
• B. A deduction from gross sales
• C. An operating expense
• D. Non-operating income, not included in net sales

Answer: (D)

Verified step by step guidance

1. Understand the concept of net sales: Net sales are calculated by subtracting returns, allowances, and discounts from gross sales. It represents the revenue generated from the core business operations.
2. Recognize the nature of interest on an investment: Interest earned on investments is classified as non-operating income because it is not directly related to the primary business activities of selling goods or services.
3. Clarify why interest on an investment is not part of net sales: Net sales focus solely on revenue from the sale of goods or services, excluding any income from non-operating activities such as investments.
4. Distinguish between operating and non-operating income: Operating income includes revenue and expenses directly related to the core business operations, while non-operating income includes items like interest, dividends, or gains from investments.
5. Conclude that interest on an investment is excluded from net sales: Since it is non-operating income, it does not contribute to the calculation of net sales and is reported separately in the income statement.