On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold.

Question

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Sales discounts are not deducted from sales to calculate cost of merchandise sold. They are a deduction from gross sales to arrive at net sales. Cost of merchandise sold is calculated separately by subtracting beginning inventory from purchased inventory and adding freight-in and then subtracting ending inventory.

On the Income Statement, Sales Discounts Are Normally Deducted from Sales