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14 Questions

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Chapter 2

Created by

@LawfulJadeite

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Questions and Answers

What do you obtain by subtracting the Cost of Goods Sold from Total Sales?

Gross Profit (correct)

Operating Income

Net Profit

Total Income

When analyzing financial statements, the term Gross Profit reflects what?

Total Expenses subtracted from Total Sales

Total Assets minus Liabilities

Net Profit after all deductions

Sales minus Cost of Goods Sold (correct)

What outcome occurs after subtracting total Expenses from Gross Profit?

Cost of Goods Sold

Net Profit (correct)

Total Revenue

Operating Margin

What is the primary difference between a Balance Sheet and an Income Statement?

An Income Statement presents financial performance over a defined period. Signup and view all the answers

What does 'Cost of Goods Sold' (COGS) primarily reflect?

The costs associated with producing goods that were sold. Signup and view all the answers

Which term best describes the profits before other business expenses are deducted?

Gross Profit Signup and view all the answers

Which of the following best describes the 'sales' line in an Income Statement?

It only includes revenues from goods sold. Signup and view all the answers

What is represented by the abbreviation COGS in an income statement?

Cost of Goods Sold Signup and view all the answers

What kind of expenses should be deducted from gross profit to determine net profit?

All operating expenses and taxes. Signup and view all the answers

Which statement about the Income Statement is correct?

It has clearly defined beginning and end periods for accounting purposes. Signup and view all the answers

What is calculated by subtracting Expenses from Gross Profit?

Net Profit Signup and view all the answers

Which term is often used interchangeably with Net Profit?

Net Income Signup and view all the answers

What formula correctly reflects the relationship between Sales, COGS, Gross Profit, Expenses, and Net Profit?

Net Profit = Sales - COGS - Expenses Signup and view all the answers

What is the primary purpose of an Income Statement?

To document sales and profitability Signup and view all the answers

Study Notes

Income Statement - Introduction

The Income Statement is like a "movie" showing how a business's finances evolve over time.
It shows income generation from sales.
Costs are categorized into Cost of Goods Sold (COGS) and Expenses.

Cost of Goods Sold (COGS)

COGS represents the direct costs associated with creating or obtaining the products sold.
It only includes costs related to goods produced or acquired for sale.

Gross Profit

Gross Profit is calculated by subtracting COGS from Sales.
The word "gross" emphasizes that this profit doesn't include other business expenses.

Expenses

Expenses are all the costs of running a business other than COGS.
They include things like rent, advertising, utilities, and salaries.

Net Profit

Net Profit is the bottom line of the Income Statement.
It's calculated by subtracting all expenses from Gross Profit.
Net Profit is also known as Net Income.

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Description

This quiz introduces the key components of an Income Statement, exploring how businesses track income and expenses. Learn about Cost of Goods Sold, Gross Profit, and Net Profit to gain a comprehensive understanding of financial performance.