Question

Sales returns and allowances and sales discounts, are both contra revenue accounts with debit balances that are deducted from sales revenue to arrive at net sales and cost of goods could also be deducted from sales revenue, but sales revenue is not deducted from itself. All of the following appear as deductions from sales revenue on an income statement for merchandisers except Sales Revenue. O Sales Returns and Allowances. Cost of Goods Sold. Sales Discounts.

Answer 1

Answer : Cost of Goods Sold is not to be reduced out of the given options from Gross Sales to arrive at Net Sales.

To arrive at net sales, sales returns, allowances and discounts are deducted from Gross sales.

Explanation to understand the answer :

Net sales is the sum of a company's gross sales minus its returns, allowances, and discounts. They can often be factored into the reporting of top line revenues reported on the income statement.

Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.

When we deduct cost of goods sold, from net sales, then we arrive at gross profit or operating profit.