Accounting Chapter 3 - Income Statement

False

Net income is increased when accounts receivable are collected.

A company's revenue recognition policy

is usually described in the notes to a company's financial statements

During 2016, a company provided services for cash of $21,000 and services on credit of $15,000. The company collected accounts receivable of $8,000 and incurred operating expenses of $22,700, $14,000 of which were paid during the year. The amount of net income (loss) for the year is:

$13,300

Which of the following statements about cash basis accounting and accrual basis accounting is correct?

Accrual basis accounting provides a better measure of operating performance than cash basis accounting.

Which of the following would not be reported on the income statement

Cost of land purchased with cash for future use.

. A company does not need to record the receipt of a bill for utilities used during this year if the company will not pay the bill until next year.

False

Expenses are the costs of operating the business that are paid for in the period covered by the income statement

False

If a company decides to record an expenditure made this period as an expense, when it should have been recorded as an asset, net income will be overstated in the current period as a result

False

The period of time from buying goods and services to collecting cash from customers is the accounting cycle.

False

When accrual basis accounting is used, net income equals the amount of cash generated by the business.

False

When expenses exceed revenues in a period, stockholders' equity will increase.

False

Which of the following items is not a specific account in a company's chart of accounts

Net Income

Which of the following statements about accrual basis accounting is correct?

If a company uses accrual basis accounting, the company should, the company should record expenses in the same period as the revenues they generate

False

If the total of debits equals the total of credits on the trial balance, it means that the accounting records do not contain any errors.

Which of the following statements about the cash basis of accounting is correct?

It can lead to a distorted view of the company's financial performance

Which of the following is not an operating activity?

Paying off a loan to the bank

Which of the following would not be considered an operating activity?

Purchase equipment for cash

Which of the following statements about the income statement of a company that was formed 10 years ago is correct?

Reports the financial effects of activities that have occurred since the company's inception

During June, the Grass is Greener Company mows 100 lawns a week; the company was paid in advance during May by those customers. The company uses the accrual basis of accounting. How will these events affect the company's financial statements?

The income statement shows the effects of the transactions in June

The Fastbank Motorcycle Service Company wins a $10 million bid to provide the repair services for a recall on a popular brand of motorcycles. No money is exchanged. The repair services are expected to be performed early next year. How will these events affect the balance sheet prepared at the end of this year?

These events will not impact the balance sheet

Which of the following represents a subtotal rather than an account?

Total Revenues

A net profit margin of 15.4% means that the company used 84.6 cents of each sales dollar to cover costs and expenses.

True

Costs that benefit future periods are reported as assets.

True

Dividing up the continuing life of a company into shorter periods is called the time period assumption.

True

GAAP does not allow cash basis accounting to be used in external financial reports.

True

If revenues are not growing faster than expenses, then net income will decrease

True

It is possible for a company to be profitable, yet not have enough cash to pay its bills.

True

Net income is based on estimates.

True

To evaluate a company's net profit margin, it is best to compare it to another company in the same industry.

True

Unearned Revenue is reported on the balance sheet as a liability.

True

When cash is paid before the related expense is incurred, an asset is reported on the balance sheet.

True

Purchasing goods to be offered for sale

Which of the following is an operating activity?

The Rainbow House Painting Company has been contracted to paint a house for $3,600. One-half of that amount will be paid up front; the rest will be paid upon satisfactory completion. Rainbow should recognize the revenue when:

the work is complete.