The Income Statement

Question 1

Salaries are Real or Nominal Accounts?

Answer 1

Nominal

Question 2

Prepaid Rent is a Real or Nominal Account?

Answer 2

Real

Question 3

Rent Expense is a Real or Nominal Account?

Answer 3

Nominal

Question 4

Purchases are Real or Nominal Accounts?

Answer 4

Nominal

Question 5

Depreciation Expense is a Real or Nominal Account?

Answer 5

Nominal

Question 6

Marketable Security is a Real or Nominal Account?

Answer 6

Real

It is an asset but if it had said expense then it would have been nominal

Question 7

Insurance Expense is a Real or Nominal Account?

Answer 7

Nominal

Question 8

COGAS =

Answer 8

Purchases + BI

Question 9

Define purchases returns

Answer 9

Business owner returns something to the amnufacturer

Question 10

What do you reduce in sales returns?

Answer 10

Sales

Question 11

What do you reduce in sales return if the product is malfunctioning?

Answer 11

Purchases

Question 12

Net Income =

Answer 12

Revenues - Expenses

Question 13

Define Revenue

Answer 13

Cash or promises of cash that flow into the business as a result of operation

Question 14

Exception to revenue = inflow of class?

Answer 14

Cash inflow comes from merchandise normally not sold by the business (depreciation on a truck or building)

Question 15

Define expense

Answer 15

Cost that the business incurs to make sales or earn revenue

Includes all cost of operating the business

Question 16

Net incomes shows?

Answer 16

The firm’s ability to earn profit to pay its debit

IMPORTANT TO CREDITORS

Question 17

Difference between merchandising firms and service firms?

Answer 17

Inclusion of COGS (on the income statement of merchandising firms) which is subtracted from sales to get gross margin
Operating expenses are then deducted from gross margin to get net income

Question 18

Services firms just have?

Answer 18

Operating expenses to take away from revenue (to get the net income)

Question 19

Define Contra Account

Answer 19

A ledger account which is deducted from or offset against a related account in the financial statement

Question 20

Examples of contra accounts?

Answer 20

Accumulated depreciation
Purchase returns and allowances
Sales returns and allowances

Question 21

Income tax is?

Answer 21

An expense of the business