Chapter 7
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13. Return on sales (ROS) is the ratio of net income to total sales.
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18. Vertical analysis is reporting an amount on a financial statement as a percentage of another item on the same financial statement.
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5. The area of accounting that focuses on reporting information to external users is called financial accounting.
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7. The net income calculated for the income statement and the net income on the work sheet can be different because of adjusting entries.
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8. If a business has a net loss for the period, expenses should be reported before revenues on the income statement.
Adequate Disclosure
Assuring that financial statements contain all information necessary to understand a business's financial condition is an application of the accounting concept
worksheet
When preparing a balance sheet, the amount of owner's capital is calculated using amounts obtained from
net income divided by total sales
The formula for calculating the net income ratio is
For Month Ended April 30, 20--
The date on a monthly income statement prepared on April 30 is written as
Accounting Period Cycle
Preparing financial statements at the end of each monthly fiscal period is an application of the accounting concept
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1. The Owner's Equity section of a balance sheet may report different kinds of details about owner's equity, depending on the need of the business.
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10. A financial ratio is a comparison between two components of financial information.
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11. A balance sheet reports financial information on a specific date and includes the assets, liabilities, and owner's equity.
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12. For a service business, the revenue reported on an income statement is often compared to two items: total expenses and net income.
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14. The calculation and interpretation of a financial ratio is called ratio analysis.
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15. A balance sheet reports financial information for a specific date.
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16. The owner's capital amount reported on a balance sheet is calculated as capital account balance less drawing account balance plus net income.
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17. The Adequate Disclosure accounting concept is applied when financial statements contain all information necessary to understand a business's financial condition.
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19. The formula for calculating the net income ratio is net income divided by total sales.
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2. An income statement reports information for a specific date indicating the financial progress of a business in earning a net income or a net loss.
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20. The formula for calculating the total expenses ratio is total expenses divided by net income.
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3. An amount written in parentheses on a financial statement indicates an estimate.
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4. The area of accounting that focuses on reporting information to internal users is called managerial accounting.
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6. When a business has two different sources of revenue, a separate income statement should be prepared for each kind of revenue.
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9. The Matching Expenses with Revenue accounting concept is applied when the revenue earned and the expenses incurred to earn that revenue are reported in the same fiscal period.
Financial progress over a specific period of time
An income statement reports a business's
It is the same as the net income shown on the work sheet
The amount of net income calculated on an income statement is correct if
Balance sheet debit column
Information needed to prepare a balance sheet's assets section is obtained from a work sheet's account title column and
Income statement debit column
Information needed to prepare an income statement's expense section is obtained from a work sheet's Account Title column and
