Question

Sales Discounts-determine Net Sales(affect on Gross Margin).

Answer 1

Net sale is result of deduction of sales return, sales discount and allowance from the gross sale. As gross profit is arrived by deducting the cost of goods sold from the net sale.So there two elements who determine the gross profit or gross margin one is net sale and other is cost of goods sold. As net sale changes the gross profit also changes, but net sale is also depend on sales discount. As we give more sales discount our net sale will decrease and on same way the gross margin will also decrease assuming the cost of goods sold remain constant, On the same way, if there is a less amount of sale discount, the amount of net sale will increase simultaneously the gross margin will also increase assuming the cost of goods is remain constant. So it is correct that sales discount determine both net sale and also a gross margin.