On a multi-step income statement, how is gross profit determined?

• A. Net sales minus operating expenses
• B. Operating income plus other revenues and gains
• C. Net sales minus cost of goods sold
• D. Net income plus income tax expense

Answer: (C)

Verified step by step guidance

1. Understand that a multi-step income statement separates operating revenues and expenses from non-operating items to provide more detail on profitability.
2. Identify that gross profit represents the profit a company makes after deducting the cost directly associated with producing goods sold, but before deducting operating expenses.
3. Recall the formula for gross profit: \(\text{Gross Profit} = \text{Net Sales} - \text{Cost of Goods Sold}\).
4. Recognize that net sales is the total revenue from sales minus any returns, allowances, and discounts, and cost of goods sold (COGS) includes all direct costs related to production.
5. Therefore, to determine gross profit on a multi-step income statement, subtract the cost of goods sold from net sales using the formula above.