Accrual Basis Income Statement
Easy Practice Test
Introduction to Accounting
Accrual Basis Income Statement
Easy Practice Test
Click the “Check Your Answer” box below each question to reveal the correct answer and explanation.
a. rent income
b. interest income
c. interest expense
d. rent expense
Answer
a. as a part of operating expenses
b. as a part of other revenues and expenses
c. as a part of discontinued operations
d. after income before taxes
Answer
a. unusual
b. infrequent
c. both unusual and infrequent
d. a result of a future transaction
Answer
a. contribution margin less operating expenses
b. sales less operating expenses
c. sales less operating expenses less other revenues and expenses
d. sales less cost of goods sold
Answer
a. a company changes the products in a product line
b. a company sells a major part of its business or an entire product line
c. a company decides not to sell a minor product
d. a company changes their operations to become more profitable
Answer
a. all costs of selling inventory to the customer
b. all costs of administration of the company
c. the cost of collecting from the customer
d. the cost of the inventory sold to the customer
Answer
a. revenues to be recorded when received
b. revenues to be recorded when earned
c. expenses to be recorded when paid
d. revenues and expenses to be recorded when cash is paid and received
Answer
a. an operating expense
b. a loss from discontinued operations
c. a loss that is unusual
d. a loss that is unusual and infrequent
Answer
a. income will decrease
b. unusual losses will decrease
c. income from operations will increase
d. cost of goods sold will decrease
Answer
a. restructuring expense
b. marketing expenses
c. salary expenses
d. interest expense
Answer
Revenues and Gains:
Sales
Dividend income
Gain on sale of equipment
Rent income
Expenses and Losses:
Salaries
Loss from fire
Depreciation expense
Cost of goods sold
Income tax expense
Administrative expense
Restructuring expense
Loss from selling major part of the business
Answer
– Cost of goods sold
= Gross profit
– Operating expenses:
Salaries expense
Depreciation expense
Administrative expense
Restructuring expense
= Income from operations
– + Other revenues and expenses
Loss from fire
Rent income
Dividend income
Gain on sale of equipment
= Income before tax
– Income tax expense
= Income from continuing operations
– Discontinued operation –
Loss from selling major part of the business
= Net income
A. Included in Gross Profit
B. Included in Operating expenses
C. Included in Other Revenues and Expenses
D. Included in Discontinued Operations
E. Not reported on the Income Statement
______ 1. Cash collected in advance of the service provided to customers
______ 2. Reorganizing the company’s operations
______ 3. Loss from selling a major product line
______ 4. Interest income
______ 5. Provide goods to customers
______ 6. The use of long-term physical assets
______ 7. Loss from a hurricane in Florida
______ 8. Research and development expenses
______ 9. Marketing expenses
______ 10. Executive salaries
______ 11. Pay employees for worked performed in the prior period
______ 12. Rent income
______ 13. The cost of inventory sold to customers
______ 14. Loss on the sale of an investment
______ 15. Loss from a flood
Answer
no service provided
B 2. Reorganizing the company’s operations
restructuring expense
D 3. Loss from selling a major product line
C 4. Interest income
A 5. Provide goods to customers
sales
B 6. Using long-term physical assets
depreciation expense
C 7. Loss from a hurricane in Florida
not part of business with customers
B 8. Research and development expenses
B 9. Marketing expenses
B 10. Executive salaries
E 11. Pay for work performed in the prior period
expense in the prior period
C 12. Rent income
A 13. The cost of inventory sold to customers
C 14. Loss on the sale of an investment
C 15. Loss from a flood
| a. goods provided this period; customer paid cash | $12,000 |
| b. goods provided this period; customer pays later | $64,000 |
| c. cash collected for goods provided last period | $53,000 |
| d. paid to employees for work done last period | $22,000 |
| e. paid to employees for work done this period | $ 4,000 |
| f. total amount employees earned for work this period | $28,000 |
| g. utility bill received for this period; pay next period | $ 200 |
| h. total paid to the utility company for last period | $ 800 |
| i. amount paid for rent (space used) last period | $ 1,200 |
| j. the cost to rent the building for this period only | $ 600 |
| k. the cost of inventory provided to customers this period | $43,000 |
| l. the company’s income tax rate is estimated to be 30% |
Answer
| Sales | $76,000 |
| – Cost of goods sold | ( 43,000) |
| =Gross Profit | 33,000 |
| – Salary Expense | ( 28,000) |
| – Utility Expense | ( 200) |
| – Rent Expense | ( 600) |
| =Income before tax | 4,200 |
| – Income tax expense | ( 1,260) |
| = Net Income | $2,940 |
Revenues and expenses are not recorded when collected or paid.
Goods provided is reported as revenue in the period it occurs.
Expenses are reported for the amount of service that was provided to the company or asset was used in the period it occurs.
Only activities that occur in the current period are reported on the current period income statement.
When cash is paid or collected does not matter to the income statement.