1. Which of the following is subtracted from total sales to calculate net sales on the income statement?

• A. Operating expenses
• B. Sales returns and allowances
• C. Interest expense
• D. Cost of goods sold

Answer: (B)

Verified step by step guidance

1. Understand the concept of net sales: Net sales represent the revenue generated from sales after deducting certain items such as sales returns, allowances, and discounts.
2. Identify the components that are subtracted from total sales to calculate net sales: Sales returns and allowances are reductions in revenue due to returned goods or price adjustments.
3. Clarify why operating expenses, interest expense, and cost of goods sold are not subtracted to calculate net sales: These items are part of other sections of the income statement, such as operating expenses and cost of goods sold, which are deducted later to calculate net income.
4. Relate the calculation of net sales to the income statement structure: Net sales are calculated at the top of the income statement, before deducting operating expenses, interest expense, and cost of goods sold.
5. Conclude that sales returns and allowances are the correct items subtracted from total sales to calculate net sales, as they directly reduce the revenue figure.