The amount of net sales is determined by which of the following formulas?

• A. Net Sales = Sales Revenue + Cost of Goods Sold
• B. Net Sales = Sales Revenue - Sales Returns and Allowances - Sales Discounts
• C. Net Sales = Sales Revenue - Cost of Goods Sold
• D. Net Sales = Sales Revenue + Sales Returns and Allowances + Sales Discounts

Answer: (B)

Verified step by step guidance

1. Understand the concept of Net Sales: Net Sales represent the actual revenue earned from sales after accounting for any deductions such as returns, allowances, and discounts.
2. Identify the components of the formula: Sales Revenue is the total amount generated from sales before any deductions. Sales Returns and Allowances refer to the reductions in revenue due to returned goods or allowances given to customers. Sales Discounts are reductions in price offered to customers for early payment or other reasons.
3. Analyze the formula options provided: The correct formula for Net Sales is the one that subtracts Sales Returns and Allowances and Sales Discounts from Sales Revenue, as these deductions reduce the actual revenue earned.
4. Eliminate incorrect formulas: For example, formulas that add Cost of Goods Sold or Sales Returns and Allowances to Sales Revenue are incorrect because they do not reflect the deductions necessary to calculate Net Sales.
5. Select the correct formula: Net Sales = Sales Revenue - Sales Returns and Allowances - Sales Discounts. This formula accurately accounts for the deductions that impact the actual revenue earned from sales.