Which of the following statements is correct regarding net sales if inventory is in stock?

• A. Net sales are calculated by subtracting inventory from total sales.
• B. Net sales are not directly affected by whether inventory is in stock.
• C. Net sales increase automatically whenever inventory is in stock.
• D. Net sales decrease if inventory is in stock.

Answer: (B)

Verified step by step guidance

1. Understand the concept of net sales: Net sales represent the revenue generated from total sales after deducting sales returns, allowances, and discounts. It is not directly influenced by inventory levels.
2. Clarify the relationship between inventory and net sales: Inventory refers to goods available for sale, but its presence or absence does not directly impact the calculation of net sales. Net sales are derived from transactions, not inventory status.
3. Analyze the incorrect options: The statement 'Net sales are calculated by subtracting inventory from total sales' is incorrect because inventory is not part of the net sales formula. Similarly, 'Net sales increase automatically whenever inventory is in stock' and 'Net sales decrease if inventory is in stock' are incorrect because inventory levels do not directly affect net sales.
4. Identify the correct statement: The correct statement is 'Net sales are not directly affected by whether inventory is in stock,' as net sales are determined by sales transactions and adjustments, not inventory status.
5. Summarize the reasoning: Net sales are calculated based on sales activity and adjustments, and inventory levels are relevant for cost of goods sold and inventory management, not for determining net sales.