Question

1. A service company provides intangible services to customers and does not have inventory.  

Group of answer choices

True

False

2.Which is the best example of an account included to arrive at income from operations calculation? (Hint: Deducting operating expenses from gross margin.)

3.

During the closing of the books process, net income or net loss is added or subtracted to (from) which account?

Group of answer choices

a. assets

b. liabilities

c. retained earnings

d. cash

Answer 1

Requirement 1:-

Intangibility of Services is arrived from the fact that the services cannot be seen or felt . Products are tangible while services are Intangible. As such, when a company is involved in the provision of Intangible services to customers, they would not have any inventory with the company and hence they will not have any inventory.

Hence, the correct answer for the questionis Option A - True.

Option B - False is incorrect as the above statement is true.

Requirement 2:-

One of the example at the account included to arrive at Income from Operations calculation is Administrative expenses. Administrative expenses include the amount spent for day to day operations like salaries, office rent, printing and expenses etc. The Administrative expenses is reduced from Revenue to arrive at the Net Income of the company.

Requirement 3:-

The correct answer is Option C - Retained Earnings. Net Income/Losses during the year is added to or subtracted from Retained Earnings to arrive at the total of Shareholders equity balance at the end of the accounting period. As such, this is the correct answer.

Option A is incorrect as Net Income is not part of the assets.

Option B is incorrect as Net Income is not added to liabilities as such.

Option D is incorrect as Net Income is not part of the cash of the company.

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