Question

Which of the following income statement relationships is true?    Net income = Gross margin -...

Which of the following income statement relationships is true?

  

Net income = Gross margin - Cost of goods sold

  

Cost of goods sold = Net sales - Gross margin

  

Net sales = Sales - Selling expenses

  

Gross margin = Sales - Operating expenses

Business   Accounting   
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Homework Answers

Answer #1

Answer: Cost of goods sold = Net sales - Gross margin

Gross margin is obtained by reducing cost of goods sold from net sales.

ie. Net Sales - Cost of Goods Sold = Gross margin

which can also be written as :

Net Sales - Gross margin = Cost of Goods Sold

Notes

1. Net Income is calculated by reducing operating expenses and taxes from gross margin.

2.Gross margin = Sales - Operating expenses : wrong because ,Gross margin = Net Sales - Cost of Goods Sold

further, Operating expenses are reduced from gross margin to reach operating Income.

3. Net Sales = Sales - Sales returns - sales discounts

Comment if you have any doubts. Please Upvote the answer if you find this helpful. Thankyou.

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