Which of the following is the correct formula to calculate net sales?

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

Answer: (D)

Verified step by step guidance

1. Understand the concept of Net Sales: Net Sales represent the actual revenue a company earns from its sales activities after accounting for deductions such as sales 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 refunds or reductions in price due to defective or unsatisfactory goods. Sales Discounts are reductions in price offered to customers for early payment or other reasons.
3. Recognize the correct formula: Net Sales = Sales Revenue - Sales Returns and Allowances - Sales Discounts. This formula accounts for all deductions to arrive at the actual revenue earned.
4. Break down the formula mathematically: Using MathML, the formula can be expressed as: $\mathrm{Net}\mathrm{Sales}=\mathrm{Sales}\mathrm{Revenue}-\mathrm{Sales}\mathrm{Returns}-\mathrm{Sales}\mathrm{Discounts}$
5. Apply the formula to a scenario: To calculate Net Sales, subtract the total of Sales Returns and Allowances and Sales Discounts from the Sales Revenue. This ensures you account for all deductions and arrive at the accurate figure for Net Sales.