Explain how to determine gross profit on an income statement by selecting the correct statement below. Cost of goods sold is added to net sales. Cost of goods sold is added to sales discounts. Sales is subtracted from cost of goods sold. Cost of goods sold is subtracted from net sales.

Cost of goods sold is subtracted from net sales.

Explanation:

A company makes gross profits after deducting the cost of producing the goods and the cost of selling them from the net sales. In other words, gross profit is income that has not been subjected to fixed costs and taxes.

In calculating gross profit, you take the net sales and subtract the cost of goods sold.

The net sale is the total revenue after adjusting for sales return, allowances, and discounts. i. e., revenue (sales) minus discounts allowed, minus sales allowances, and minus return inwards.

The cost of goods sold is the expenses a business incur in producing its products. In calculating the cost of goods sold, take opening stock, add net purchases, and minus closing stock.

Net purchase is purchase minus discounts received, minus purchases allowances, minus purchases returns

Gross profit is a measure of a company's efficiency in the use of its suppliers and labor in its production process.