Which of the following equations best expresses the relationship between net sales and profits?

• A. Net Profit = Net Sales + Cost of Goods Sold + Operating Expenses + Taxes
• B. Net Profit = Net Sales - Cost of Goods Sold - Operating Expenses - Taxes
• C. Net Sales = Net Profit + Cost of Goods Sold + Operating Expenses + Taxes
• D. Net Sales = Net Profit - Cost of Goods Sold - Operating Expenses - Taxes

Answer: (B)

Verified step by step guidance

1. Understand the components of the equation: Net Sales, Net Profit, Cost of Goods Sold (COGS), Operating Expenses, and Taxes. Net Sales represents the revenue generated from selling goods or services, while Net Profit is the remaining income after all expenses are deducted.
2. Recall the formula for calculating Net Profit. Net Profit is derived by subtracting all expenses (COGS, Operating Expenses, and Taxes) from Net Sales. This aligns with the equation: Net Profit = Net Sales - Cost of Goods Sold - Operating Expenses - Taxes.
3. Analyze the alternative equations provided. For example, the equation 'Net Profit = Net Sales + Cost of Goods Sold + Operating Expenses + Taxes' is incorrect because it adds expenses instead of subtracting them, which would inflate profits unrealistically.
4. Verify the relationship between Net Sales and Net Profit. Rearrange the correct equation (Net Profit = Net Sales - COGS - Operating Expenses - Taxes) to express Net Sales in terms of Net Profit: Net Sales = Net Profit + COGS + Operating Expenses + Taxes.
5. Compare the equations provided in the problem to identify the correct one. The correct equation is 'Net Profit = Net Sales - Cost of Goods Sold - Operating Expenses - Taxes,' as it accurately reflects the relationship between revenue and expenses in determining profit.