Question 1

Accrual accounting is the process

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that accountants use in adjusting raw transaction data into refined measures of a firm’s economic performance

Question 2

top of income statement

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Revenues

Question 3

what comes next in income statement after Revenues

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Expenses

Question 4

of revenue represents the value of

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the goods and services provided by a company in its business operations

Question 5

In exchange for providing goods and services, a company receives

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cash, promises of future payment (accounts receivable), or other items of value

Question 6

\The recorded amount of expenses represents the value of

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resources used in generating the reported revenue

Question 7

Expenses are incurred in anticipation that they will

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generate revenues

Question 8

When a business sells goods to customers, the cost of the goods sold is recorded as an expense

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cost of goods sold, or cost of sales

Question 9

For a retailer, cost of goods sold is merely the wholesale cost paid to

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purchase the item

Question 10

the difference between sales and cost of goods sold is called

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gross profit and represents the margin between the cost of a product to a company and the price for which the company sells that product

Question 11

Bad Debt Expense

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company extends credit to customers, there is always the risk that some customers will never pay

Question 12

Depreciation

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represent the wear and tear on long-lived assets during the year

Question 13

An important thing to remember about depreciation expense is that it doesn’t involve any

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ash outflow—the amount of depreciation is only an accountant’s estimate of wear and tear.

Question 14

“Below-the-Line”

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re excluded from income from continuing operations because they are unlikely to recur in the future

Question 15

Gains and losses that result from transactions that are

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both unusual in nature and infrequent in occurrence are extraordinary items

Question 16

earnings per share (EPS)

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which is the amount of net income associated with each share of stock.

Question 17

With a multiple-step income statement all revenues are grouped together, all expenses are grouped together, and net income is computed as the difference between the two.

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False

Question 18

When revenue and expense items are arranged to highlight important profit relationships, the resulting income statement format is called a

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multiple-step income statement

Question 19

With a single-step income statement all revenues are grouped together, all expenses are grouped together, and net income is computed as the difference between the two.

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True

Question 20

Revenue recognition

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two criteria to determine when revenue should be recognized:

The promised work must be done before revenue is recognized.

Cash collection should be reasonably assured before revenue is recognized.

Question 21

To calculate the prior year net income amount based on a percent change,

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divide the current year net income amount by 1 plus the percent change expressed as a decimal (e.g., 1.15 for 15%).

Question 22

Long-term assets, such as property, plant, and equipment, do not

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increase naturally as sales volume increases

Question 23

Most forecasting exercises begin with a forecast of

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sales

Question 24

If a company anticipates a 40% increase in sales volume, then it is most likely that the company will need about a 40% increase in

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accounts payable

Question 25

Five key measures of income are as follows:

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Gross profit, Operating income, Income from continuing operations, Net income, Comprehensive income

Question 26

Gross profit

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the difference between the selling price of a product and the cost of the product

Question 27

Operating income

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gross profit minus all other expenses except for interest and taxes. Operating income measures the performance of the fundamental business operations conducted by a company

Question 28

Income from continuing operations

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operating income minus interest expense, minus income tax expense, and plus or minus other miscellaneous revenue and expense items, and gains and losses from peripheral transactions and events.

Question 29

Net income

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income from continuing operations plus or minus the results of discontinued operations and extraordinary items, net of their respective income tax effects

Question 30

Net income includes all

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revenues, expenses, gains, and losses

Question 31

Comprehensive income

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net income plus or minus adjustments for changes in company wealth stemming from changes in certain exchange rates, interest rates, or financial instruments’ values.

Question 32

The primary categories of income statement items are

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revenues, expenses, gains, and losses

Question 33

Income statement items that do not relate to a company’s continuing operations are income from

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discontinued operations and extraordinary items

Question 34

Income statements are prepared in a variety of formats

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multiple-step income statement

Question 35

A single-step income statement merely groups all of

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the revenues and all of the expenses, and reports the overall difference as net income

Question 36

A multiple-step income statement emphasizes the presentation of

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gross profit and operating income

Question 37

Revenue should be recognized when value has been delivered to customers which is typically only

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after the required work has been performed and after the collection of cash is reasonably assured

Question 38

The matching concept has traditionally been used to

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decide when to recognize expenses

Question 39

In order for revenue to be recognized, the promised work must be

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done and cash collection must be reasonably assured

Question 40

A useful concept in recognizing expenses is that of matching, which states that

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an expense should be recognized in the same period in which the revenue it was used to generate is recognized

Question 41

When direct matching is not possible, expenses are recognized using

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either systematic allocation or immediate expensing

Question 42

Individual transactions impacting income can be analyzed using the expanded accounting equation which is:

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Assets = Liabilities + Paid-in Capital + (Revenues − Expenses − Dividends)

Question 43

An important use of an income statement is to

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forecast income in future periods

Question 44

Most financial statement forecasting exercises start with a forecast of sales, which establishes

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the expected scale of operations in future periods

Question 45

Some balance sheet items increase naturally as the level of sales increases; examples of such accounts are

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cash, accounts receivable, inventory, and accounts payable.

Question 46

Depreciation expense is more likely to be related to the amount of a

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company’s property, plant, and equipment

Question 47

income tax expense is typically a relatively constant

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percentage of income before taxes.

Question 48

Top of the income statement, we’re going to see

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Revenues

Question 49

if you look at a company’s revenue, it’s the

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the value of the goods and services that that
company has provided to customers as part of normal business operations

Question 50

type of revenues

Accepted Answer

1. Sales Revenue
2. Service Revenue
3.Interest Revenue
4. Other Revenue

C213-Income statment

Income Statment

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