Which of the following best describes 'net sales' for a sole proprietorship?

• A. Total cash received from customers during the period
• B. Net income after deducting all expenses from total revenue
• C. Total sales revenue before any deductions
• D. Total sales revenue minus sales returns, allowances, and discounts

Answer: (D)

Verified step by step guidance

1. Understand the concept of 'net sales': Net sales represent the total revenue generated from sales after deducting sales returns, allowances, and discounts. It is a key metric for evaluating the actual revenue earned from sales activities.
2. Identify the components that affect net sales: These include sales returns (products returned by customers), sales allowances (price reductions for defective or damaged goods), and sales discounts (reductions offered for early payment or promotional purposes).
3. Recognize the formula for calculating net sales: Net Sales = Total Sales Revenue - Sales Returns - Sales Allowances - Sales Discounts.
4. Clarify why the other options are incorrect: 'Total cash received from customers during the period' refers to cash flow, not net sales. 'Net income after deducting all expenses from total revenue' refers to net income, not net sales. 'Total sales revenue before any deductions' refers to gross sales, not net sales.
5. Apply the definition to the correct answer: Net sales are best described as 'Total sales revenue minus sales returns, allowances, and discounts,' which aligns with the formula and concept explained above.