Which of the following best describes 'net sales' in financial accounting?

• A. Total cash received from customers during the period
• B. The sum of all sales before any deductions
• C. A positive balance that remains after total expenses are subtracted from total income
• D. Total revenue minus sales returns, allowances, and discounts

Answer: (D)

Verified step by step guidance

1. Understand the concept of 'net sales' in financial accounting. Net sales represent the total revenue generated from sales after deducting sales returns, allowances, and discounts.
2. Sales returns refer to the value of goods returned by customers due to defects, dissatisfaction, or other reasons. These reduce the total revenue.
3. Allowances are reductions in the selling price granted to customers, often due to minor defects or issues with the product. These also decrease the total revenue.
4. Discounts are reductions in the price offered to customers, such as early payment discounts or promotional discounts. These are subtracted from the total revenue.
5. To calculate net sales, use the formula: $\mathrm{Net}\mathrm{Sales}=\mathrm{Total}\mathrm{Revenue}-\mathrm{Sales}\mathrm{Returns}-\mathrm{Allowances}-\mathrm{Discounts}$. This ensures you account for all deductions from the gross sales figure.