What is an income statement?
a) A financial statement that shows a company’s assets, liabilities, and equity
b) A financial statement that shows a company’s revenues, expenses, and net income
c) A financial statement that shows a company’s cash inflows and outflows
Answer: b) A financial statement that shows a company’s revenues, expenses, and net income
Which of the following is a common format for an income statement?
a) Balance sheet format
b) Statement of cash flows format
c) Single-step or multi-step format
Answer: c) Single-step or multi-step format
What is the difference between the single-step and multi-step formats for an income statement?
a) The single-step format only shows total revenues and expenses, while the multi-step format shows more detail
b) The multi-step format only shows total revenues and expenses, while the single-step format shows more detail
c) The single-step format is used for small businesses, while the multi-step format is used for larger businesses
Answer: a) The single-step format only shows total revenues and expenses, while the multi-step format shows more detail
Which of the following is an example of a revenue on an income statement?
a) Salaries and wages expense
b) Cost of goods sold
c) Sales revenue
Answer: c) Sales revenue
Which of the following is an example of an expense on an income statement?
a) Interest income
b) Gain on sale of assets
c) Rent expense
Answer: c) Rent expense
What is net income on an income statement?
a) The total amount of revenues earned by a company
b) The total amount of expenses incurred by a company
c) The difference between total revenues and total expenses
Answer: c) The difference between total revenues and total expenses
Which of the following is true about the income statement?
a) It shows the cash flows of a company
b) It shows the financial position of a company at a specific point in time
c) It shows the financial performance of a company over a period of time
Answer: c) It shows the financial performance of a company over a period of time.
Which of the following is a non-operating expense on an income statement?
a) Cost of goods sold
b) Advertising expense
c) Interest expense
Answer: c) Interest expense
Which of the following is a gross profit margin formula?
a) Gross profit / net sales
b) Net income / net sales
c) Total expenses / net sales
Answer: a) Gross profit / net sales
What is the purpose of the income statement?
a) To show the financial position of a company at a specific point in time
b) To show the financial performance of a company over a period of time
c) To show the cash flows of a company
Answer: b) To show the financial performance of a company over a period of time
What is the difference between operating and non-operating income on an income statement?
a) Operating income is revenue earned from normal business activities, while non-operating income is revenue earned from other sources
b) Operating income is revenue earned from other sources, while non-operating income is revenue earned from normal business activities
c) There is no difference between operating and non-operating income
Answer: a) Operating income is revenue earned from normal business activities, while non-operating income is revenue earned from other sources
Which of the following is an example of an extraordinary item on an income statement?
a) Loss from a natural disaster
b) Rent expense
c) Salaries and wages expense
Answer: a) Loss from a natural disaster
Which financial statement is used to calculate net income?
a) Balance sheet
b) Statement of cash flows
c) Income statement
Answer: c) Income statement