Which of the following situations is an example of net sales?

• A. An employee receives a paycheck after payroll taxes and deductions are subtracted from gross salary.
• B. A company calculates its gross profit by subtracting cost of goods sold from net sales.
• C. A business records the total amount of cash received from customers before any deductions.
• D. A company reports total sales of \$100,000, less \$5,000 in sales returns and \$2,000 in sales discounts, resulting in \$93,000.

Answer: (D)

Verified step by step guidance

1. Understand the concept of net sales: Net sales represent the total revenue a company earns from its sales after deducting sales returns, allowances, and discounts. It is a key metric in financial accounting to measure the actual revenue generated from sales activities.
2. Identify the components of net sales: Net sales are calculated using the formula: $\mathrm{Net} \mathrm{Sales}=\mathrm{Gross} \mathrm{Sales}-\mathrm{Sales} \mathrm{Returns}-\mathrm{Sales} \mathrm{Discounts}$. Gross sales represent the total sales before any deductions.
3. Analyze the given options: The first option describes payroll deductions, which is unrelated to net sales. The second option refers to gross profit, which is calculated after determining net sales but is not itself an example of net sales. The third option refers to total cash received before deductions, which aligns with gross sales, not net sales.
4. Focus on the correct example: The fourth option describes a situation where total sales (\$100,000) are reduced by sales returns (\$5,000) and sales discounts (\$2,000), resulting in net sales of \$93,000. This aligns with the definition and formula for net sales.
5. Conclude that the correct example of net sales is the fourth option, as it demonstrates the calculation of net sales by deducting returns and discounts from total sales.