Which of the following terms refers to price reductions made from the list price of a product when calculating net sales?

• A. Sales discounts
• B. Cost of goods sold
• C. Accounts receivable
• D. Operating expenses

Answer: (A)

Verified step by step guidance

1. Understand the concept of net sales: Net sales are calculated by subtracting sales returns, allowances, and discounts from gross sales. This gives the actual revenue earned from sales transactions.
2. Define sales discounts: Sales discounts refer to reductions in the price of a product or service offered to customers as an incentive for early payment or bulk purchases. These discounts are subtracted from gross sales to calculate net sales.
3. Differentiate the given terms: Analyze the other options provided: 'Cost of goods sold' refers to the direct costs of producing goods sold by a company, 'Accounts receivable' represents money owed to the company by customers, and 'Operating expenses' are costs incurred during normal business operations. None of these terms relate to reductions in the list price for calculating net sales.
4. Identify the correct term: Based on the definitions and the role of sales discounts in calculating net sales, recognize that 'Sales discounts' is the correct term that refers to price reductions made from the list price.
5. Apply this understanding: When solving similar problems, always consider the context of net sales and the specific adjustments (returns, allowances, and discounts) that impact its calculation.