Question

TRUE OR FALSE

1. The SCI is a picture of the results of the operations of the company as of the cut-off date.

2. The major elements of the SCI are income and expenses.

3. Cost of sales is computed as the cost of goods sold available for sales less ending inventory.

4. Goods returned by the customer are immediately deducted from the sales revenue account.

5. Expense decreases assets and therefore has credit normal balance.

6. Depreciation Expense is a line account found in an SCI prepared following the multi-step format.

7. Revenue increases equity and therefore has a credit normal balance.

8. Accumulated depreciation appears on the income statement.

9. The excess of expense over revenue is called loss.

10. The focal point of the accounting cycle is the financial statement.

Answer 1

1. True

Explanation: - The statement of comprehensive income shows the results of operations during the given period, by maintaining the cut off classifications i.e., only expenses or income relating to current period making adjustments for prepaid or outstanding. And it also contains other income which are extraordinary in nature for a given period.

Therefore, it shows the overall picture of a company operations during the given period.

2. True.

Explanation: - Major elements are revenue and expenses although other elements contains extraordinary gains or losses which don’t usually occur as other comprehensive income in the statement.

3. True

Explanation: - Cost of goods available for sale (-) ending inventory. It represents the Cost incurred for sold products, therefore from total cost incurred only for sold units.

The cost of goods sold is computed: -

Opening stock	XXX
Add: - Purchases & Direct expenses	XXX
Goods available for sale	XXX
Less: - Ending inventory	XXX
Cost of goods sold	XXX

4. True.

Explanation: - When goods sold any entity will record as their revenue and when they are returned, they will be deducted from the same revenue account.

Although some entities maintain separate account as “Sales returns” to keep track of their sales returns, but ultimately, they will be set off against sales account to show the net sales during the given period.,

5. False

Explanation: - Expenses is always debit balance – it might decrease the asset or it might increase the liability. By debiting the expense and crediting the asset – Asset value decreases and also debiting the expense and crediting the liability it will increase the liability.

6. True

Explanation; -Depreciation can be found in operating expense items. as separate line of expense item.

7. True

Explanation: - Revenue always increase the equity and corresponding expense decreases equity or asset or increase the liability. Therefore, revenue will be always credit balance and expense will always be debit balance.

8. False

Explanation: - Income statement only contains the current year operation items. Current year depreciation is current year of operations item. But accumulated depreciation represents the depreciation balance of the previous year items, therefore will only appear in balance sheet but not in income statement.

9. True

Explanation: - If expenses are more than revenue then it is loss to an entity.

10. True

The accounting cycle represents the maintenance of books of accounts.

Accounting is an art of recording, classifying and summarizing the financial information.

It includes all recording the journal entries by classifying and posting into ledgers accounts and preparing the trial balance to verify the accuracy of accounts and preparing adjusting entries align with accrual concept and summarizing the financial information’s through financial statements and helping the owners of entities to assess the performance of entities and taking the actions or decision accordinly