Multiple Choice
If you have 4 quarters and 2 nickels, what is your total amount in net sales revenue, assuming each coin represents a dollar of sales and there are no deductions for returns, allowances, or discounts?
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4. Merchandising Operations
Net Sales
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Which of the following statements about net sales is FALSE?
A
Net sales are always higher than gross sales.
B
Net sales represent the total revenue a company earns from sales after all deductions.
C
Net sales provide a more accurate measure of a company's actual sales performance than gross sales.
D
Net sales are calculated by subtracting sales returns, allowances, and discounts from gross sales.
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the total revenue a company earns from sales after deducting sales returns, allowances, and discounts. It provides a more accurate measure of a company's actual sales performance than gross sales.
Review the formula for calculating net sales: Net Sales = Gross Sales - (Sales Returns + Allowances + Discounts). This formula highlights the deductions applied to gross sales to arrive at net sales.
Analyze the statement 'Net sales are always higher than gross sales': This statement is FALSE because net sales are calculated by subtracting deductions from gross sales. Therefore, net sales are typically lower than gross sales unless there are no deductions.
Compare the other statements: The other statements correctly describe net sales, including its calculation and its role in providing a more accurate measure of sales performance.
Conclude that the FALSE statement is 'Net sales are always higher than gross sales,' as it contradicts the definition and calculation of net sales.
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