Multiple Choice
Which of the following best describes the rate at which a business grows or increases its revenue from sales?
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4. Merchandising Operations
Net Sales
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Which of the following best describes how net sales are calculated on the income statement?
A
Net sales = Gross sales - Sales returns and allowances - Sales discounts
B
Net sales = Gross sales + Cost of goods sold
C
Net sales = Gross sales - Operating expenses
D
Net sales = Gross sales + Sales returns and allowances
Verified step by step guidance1
Understand the concept of net sales: Net sales represent the revenue generated from sales after accounting for deductions such as sales returns, allowances, and discounts.
Identify the components of gross sales: Gross sales refer to the total sales revenue before any deductions are applied.
Recognize the deductions: Sales returns and allowances are reductions in revenue due to returned goods or price adjustments, and sales discounts are reductions offered to customers for early payment or other incentives.
Apply the formula for net sales: Net sales are calculated using the formula: Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts.
Compare the given options: Evaluate each option against the correct formula to identify the accurate description of how net sales are calculated.
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