When analyzing a company's income statement, a fact to remember is that:
A) cost of sales is another term for gross profit.
B) cost of goods sold is the major expense of merchandising entities.
C) companies are not allowed to offset items such as interest income and interest expense against each other.
D) net sales is equal to sales revenue less cost of goods sold.

Question

Quizplus · Accepted Answer

Cost of goods sold (COGS) is the major expense of merchandising entities, as it represents the direct cost of producing the goods sold. Gross profit is calculated as net sales minus COGS, and is not the same as cost of sales. Companies are allowed to offset items such as interest income and expense, so option C is incorrect. Option D is partially correct, but net sales is actually equal to sales revenue minus any returns, discounts or allowances, not just COGS.

When Analyzing a Company's Income Statement, a Fact to Remember