INCOME STATEMENT AND STATEMENT OF OWNER’S EQUITY

Question 1

The _______________________, also known as the income statement, is the report that measures the financial performance or the success of company operations for a given period. It is also often called the
profit or loss statement or statement of earnings.

Answer 1

Statement of Comprehensive Income

Question 2

Approaches to Measurement of Profit

Answer 2

Capital maintenance approach
Transaction approach

Question 3

Under this Approach, it measures profit or net income as the excess of ending capital over the beginning capital, after excluding the effects of transactions with owners.

Answer 3

Capital maintenance approach

Question 4

Under this approach, profit is measured as the difference between the total income and total expenses for a given reporting period, based on recorded transactions of the enterprise. This approach is applied using the accrual basis of accounting

Answer 4

Transaction approach

Question 4

Elements of Income Statement

Answer 4

Income
Expenses

Question 5

These are increases in economic benefits during the accounting period in the form of inflows
or enhancements of assets or decreases of liabilities that result in increases in equity, other than those
relating to contributions from equity participants.

Answer 5

Income

Question 6

Arise from central or major revenue-producing activities.

Answer 6

Revenues/Expenses

Question 6

Arise from incidental transactions to operations of the entity

Answer 6

Gains/Losses

Question 7

These are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity other than those relating to distributions to equity participants

Answer 7

Expenses

Question 8

An alternative to the single-step income statement is the ___________ because it uses multiple subtractions in computing the net income shown on the bottom line

Answer 8

Multiple-Step Income Statement

Question 9

The ______________ uses only one (1) subtraction to arrive at net income.

The _________ consists of just two (2) groupings: revenues and expenses. Expenses are deducted from revenues to arrive at net income or loss, hence the expression “________.”

Answer 9

Single-Step Income Statement

Question 10

is the company’s revenue from sales or services, displayed at the very top of the statement. This value will be the gross of the costs associated with creating the goods sold or in providing services.

Answer 10

Sales Revenue

Question 11

occur when the buyer returns defective, damaged, or otherwise undesirable products to the seller.

Answer 11

Purchase returns

Question 11

This is where cash discounts given to customers who pay early are recorded

Answer 11

Sales Discount

Question 12

This account is debited to record returns of customers or allowances for such returns.

Sales returns occur when customers return defective, damaged, or otherwise undesirable products to the seller.

Answer 12

Sales returns and allowances

Question 12

This account shows the value of goods bought during the current accounting period

Answer 12

Purchases

Question 13

occur when the buyer agrees to keep such merchandise in return for a reduction in the selling price granted by the seller to the buyer

Answer 13

Purchase allowances

Question 14

This account is used to record the shipping costs of merchandise purchased by the company

Answer 14

Freight in

Question 15

These are expenses not directly related to the
merchandising function of the company but are necessary for the business to operate effectively.

Answer 15

General and Administrative Expenses