Businesses can compensate employees for work they produce when being paid by which of the following methods, which would be deducted from gross sales to calculate net sales?

• A. Interest income
• B. Sales commissions
• C. Depreciation expense
• D. Inventory purchases

Answer: (B)

Verified step by step guidance

1. Understand the concept of net sales: Net sales are calculated by subtracting certain expenses or deductions from gross sales. These deductions typically include items directly related to the sales process, such as sales returns, allowances, and sales commissions.
2. Identify the nature of each option provided: Interest income is not related to sales deductions; it is a financial income. Depreciation expense is related to the allocation of asset costs over time, not directly tied to sales. Inventory purchases are part of cost of goods sold, not a deduction from gross sales.
3. Focus on sales commissions: Sales commissions are payments made to employees or sales representatives based on the sales they generate. These are directly tied to the sales process and are deducted from gross sales to calculate net sales.
4. Relate sales commissions to the calculation of net sales: Since sales commissions are a direct expense incurred to generate sales, they are subtracted from gross sales to arrive at net sales.
5. Conclude that sales commissions are the correct method of compensation that would be deducted from gross sales to calculate net sales, as they are directly tied to the sales process.