On a multiple-step income statement, what happens to the amount of sales returns and allowances?
A) It is subtracted from net sales to determine gross margin on sales.
B) It is subtracted from gross sales to determine net sales.
C) It is added in the calculation of cost of goods sold.
D) It is subtracted from gross margin on sales to determine net sales.

Question

Quizplus · Accepted Answer

Sales returns and allowances are deducted from gross sales on the income statement to determine net sales. This is because sales returns and allowances represent a reduction in revenue due to returned merchandise or discounts given to customers, and thus should be subtracted from gross sales to arrive at the actual amount of revenue earned by the company.

On a Multiple-Step Income Statement, What Happens to the Amount