Question

1. Income statements can be used as a means to compare one organizations performance against it's competitors

True

False

2. Which of the following might be interested in reviewing the income statement of an organization

Banks and other lenders who are considering loaning money to the organization

Suppliers who are considering sending inventory on credit

Customers who are deciding if the organization will be in business for a long period

Employees and others who are considering whether to work at this organization

All of the above

3. Which type of income statement has cost of sales and gross profit

Single Step

Multi Step

Both of these

Neither of these

4. The single step income statement uses only one subtraction to arrive at operating income or loss

True

False

5. The time period for an income statement must be clearly noted

True

False

6. The time period for an income statement can include any of the following except

A month

A quarter

A year

Any of these time periods are acceptable

7. The matching principle requires the recording of revenues in the period in which they are earned, and the recording of expenses in the period in which they are incurred

True

False

Answer 1

(1) TRUE

We can use income statements to compare the performance of an organization against its competitors.

(2) Option (E) is correct.

All the options are correct. Banks,Lenders, Suppliers, Customers and employees are all users of the financial statements. They review the income statement and other financial statements as per their needs.

(3) Option (B) is correct'

Multi step income statement has cost of sales and gross profit.

(4) TRUE

Single step income statement has only one subtraction of expenses to arrive at the operating income or loss.

(5) TRUE

Income statement is prepared for a particular time period. So, it must be clearly noted to check for which time period it is being prepared.

(6) Option (D) is correct

Income statement can be prepared for any time period.

(7) TRUE

Revenues and expenses are recognized on accrual basis under the matching concept. Revenues are recognized when earned and expenses are recognized when incurred.