Net sales. Need help!

[claire1010]

am doing a practice exam right now and have come across a question regarding net sales

why is showing net sales (sales-sales return) important? Relate your answer to an accounting principle

what would the accounting principle be? reporting period?

Anyone knows the answer?  Thanks

[gggai8i99]

What exam is this?

Never seen such a question

[claire1010]

Accounting exams!

it was from that thread

the revision 1

i remember there is something about the net sales in the textbook too.
it says it is useful for the firm to assess the suitability of stock

but what would the principle be..hmm

[RossiJ]

It helps with accuracy of decision making as recording it separately allows the firm to identify problems with sales returns and why they are occurring

derp derp edit, not sure on principle

[gggai8i99]

net sales is important to assess the quality and suitability of the stock being sold, which will aid decision making. It shows customer dissatisfaction of the goods being sold and the owner must realise it is a problem .... so relevance

[claire1010]

net sales is important to assess the quality and suitability of the stock being sold, which will aid decision making. It shows customer dissatisfaction of the goods being sold and the owner must realise it is a problem .... so relevance

yeah i agree.
but relevance is a qualitative characteristic?

[RossiJ]

Reporting Period:: match revenues (sales) against expenses (sales returns) allowing for an accurate net profit to ultimately be calculated

[claire1010]

It helps with accuracy of decision making as recording it separately allows the firm to identify problems with sales returns and why they are occurring

derp derp edit, not sure on principle

haha thanks

can't really think of a principle that relates to it though >.< lets hope it will not pop up on the exam tomorrow haha

[gggai8i99]

Reporting Period:: match revenues (sales) against expenses (sales returns) allowing for an accurate net profit to ultimately be calculated

i doubt vcaa would ask the question but yee reporting period most probably

[claire1010]

Reporting Period:: match revenues (sales) against expenses (sales returns) allowing for an accurate net profit to ultimately be calculated

hmm fair enough thanks
so explanation could be reporting net sales allows all expenses incurred to be matched against all revenues earned in the same reporting period so that profit could be accurately calculated...

[_avO]

Sales returns is not an expense its a contra revenue (similar to accumulated depreciation - contra asset) which is why its recorded under Net Sales and as the others have said it can be used to monitor allowances as a percentage of overall sales. As far as which principle I'm going to assume reporting period (doesn't fit the criteria for the other 6 principles), since the life of the business is broken into regular periods then you can record the correct amount of sales returns for the period to better assist the financial decisions of the entity.