10. Which of the following best describes 'Net Sales' on a company's income statement?

• A. Total sales revenue minus cost of goods sold
• B. Total sales revenue minus sales returns, allowances, and discounts
• C. Total sales revenue minus operating expenses
• D. Total sales revenue before any deductions

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'Net Sales': Net Sales represents the actual revenue a company earns from its sales activities after accounting for deductions such as sales returns, allowances, and discounts.
2. Review the components of Total Sales Revenue: Total Sales Revenue is the gross amount earned from selling goods or services before any deductions.
3. Identify the deductions: Sales returns are the refunds given to customers for returned goods, allowances are reductions in price due to defects or issues, and discounts are reductions offered to customers for early payment or promotional purposes.
4. Calculate Net Sales: To determine Net Sales, subtract the total amount of sales returns, allowances, and discounts from the Total Sales Revenue. The formula is: $\mathrm{Net}\mathrm{Sales}=\mathrm{Total}\mathrm{Sales}\mathrm{Revenue}-\mathrm{Sales}\mathrm{Returns}-\mathrm{Allowances}-\mathrm{Discounts}$
5. Compare the options provided: Based on the definition and formula, the correct description of 'Net Sales' is 'Total sales revenue minus sales returns, allowances, and discounts.'