How is net sales calculated?

Net sales is calculated by taking total sales and subtracting any returns, damaged goods, and discounts. This approach effectively shows the actual revenue a company retains from its sales after accounting for these deductions.

Returns refer to any goods that customers send back, while damaged goods are items that cannot be sold at full price due to their condition. Discounts can include various forms, such as promotional discounts or early payment discounts given to customers. By factoring in these elements, businesses can ascertain the true revenue generated from sales activities, which is crucial for evaluating performance and making financial decisions.

The other methods outlined in the incorrect options do not appropriately capture the essence of net sales. Total sales minus taxes provides a gross figure that does not reflect the true revenue after accounting for product-related adjustments. Similarly, mixing gross profit with operating expenses fails to encapsulate sales-related metrics, while the cost of goods sold against operating income pertains more to overall profitability rather than net sales specifically.