Accounting Game Chapter 2
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Accounting Game Chapter 2

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Questions and Answers

What does the Income Statement represent in comparison to a Balance Sheet?

  • A timeline of financial activities with a beginning and an end. (correct)
  • A snapshot of a business at one point in time.
  • A representation of financial growth over a long term.
  • A detailed analysis of assets and liabilities.

    • What is the first element that contributes to generating income in a business as mentioned?

  • Cost of Goods Sold.
  • Sales. (correct)
  • Gross Profit.
  • Expenses incurred.

    • What does the term 'Cost of Goods Sold' specifically relate to?

  • All expenses of doing business.
  • The cost involved in producing and selling a product. (correct)
  • The overall profit made by a company.
  • The total income generated from sales.

    • What is the formula for calculating Gross Profit?

    <p>Sales - Cost of Goods Sold.</p> Signup and view all the answers

    Why is it called Gross Profit?

    <p>It is the profit before any expenses are deducted.</p> Signup and view all the answers

    What is the relation between Sales and Cost of Goods Sold in determining profit?

    <p>Sales minus COGS results in Gross Profit.</p> Signup and view all the answers

    What does the 'gross' in Gross Profit imply regarding its calculation?

    <p>It is before the subtraction of all expenses.</p> Signup and view all the answers

    What is the purpose of the General Ledger in a business?

    <p>To record every transaction that happens.</p> Signup and view all the answers

    What was the total sales amount for the week from the lemonade stand?

    <p>$25</p> Signup and view all the answers

    How is the available for sale calculated during the week?

    <p>Beginning Inventory + Purchases</p> Signup and view all the answers

    When calculating the Cost of Goods Sold, what is subtracted?

    <p>Ending Inventory</p> Signup and view all the answers

    What is the mathematical formula to derive the Cost of Goods Sold?

    <p>Beginning Inventory + Purchases - Ending Inventory</p> Signup and view all the answers

    What do you do with the Cost of Goods Sold amount after calculating it?

    <p>Subtract it from Total Sales.</p> Signup and view all the answers

    What is the first figure obtained in the income statement before subtracting expenses?

    <p>Gross Profit</p> Signup and view all the answers

    What does the Income Statement primarily provide a detailed breakdown of?

    <p>Sales and Expenses</p> Signup and view all the answers

    How is Net Profit calculated in relation to Gross Profit?

    <p>Net Profit is Gross Profit minus Total Expenses.</p> Signup and view all the answers

    What type of statement provides a larger picture of financial performance, including specific details on sales and expenses?

    <p>Income Statement</p> Signup and view all the answers

    Why does the principal of a loan not appear on the Income Statement?

    <p>It hasn't been earned.</p> Signup and view all the answers

    Which financial statement tracks the effect of a loan on cash transactions?

    <p>Cash Flow Statement</p> Signup and view all the answers

    What expense related to a loan would appear on the Income Statement?

    <p>Interest payment</p> Signup and view all the answers

    What is required to present a complete financial picture?

    <p>Three financial statements are necessary.</p> Signup and view all the answers

    Which financial statement reflects the profits made during a specific period of time?

    <p>Income Statement</p> Signup and view all the answers

    What is considered Ending Inventory?

    <p>Items available for sale at the end of the period</p> Signup and view all the answers

    What connects the Beginning and Ending Balance Sheets?

    <p>Income Statement</p> Signup and view all the answers

    Why does Ending Inventory have value on the Balance Sheet?

    <p>It has potential to be sold in the future</p> Signup and view all the answers

    What does a Beginning Balance Sheet represent?

    <p>The company's financial position at the start of a period</p> Signup and view all the answers

    What must be done with Ending Inventory before calculating Cost of Goods Sold?

    <p>Subtract it from total available for sale</p> Signup and view all the answers

    Study Notes

    Income Statement

    • The Income Statement shows the profit generated by a business over a specific period of time.
    • Revenue is represented by sales.
    • Expenses are categorized as Cost of Goods Sold (COGS) and other operating expenses.
    • COGS represents the direct cost of producing the goods sold.
    • The Income Statement starts with sales revenue and then subtracts COGS to arrive at Gross Profit.
    • Gross Profit is sales revenue minus COGS.
    • Operating expenses are subtracted from Gross Profit to arrive at Net Profit.
    • Operating expenses include expenses such as rent, advertising, and utilities.

    Relating the Balance Sheet and Income Statement

    • The Balance Sheet is like a snapshot in time, showing the financial position of a company at a particular moment.
    • The Income Statement is like a movie, tracking the changes in a company's financial position over a period of time.
    • The Income Statement helps to explain the changes in Earnings shown on the Balance Sheet.

    The Importance of Inventory

    • Inventory is goods available for sale.
    • Inventory is recorded on both the Balance Sheet and the Income Statement.
    • Inventory is recorded as Ending Inventory on the Balance Sheet, which indicates goods that were not sold during the accounting period.
    • Cost of Goods Sold on the Income Statement represents the value of goods that were sold during the accounting period.

    Cash Flow

    • Cash flow is the movement of cash into and out of a business.
    • Cash flow is not reflected on either the Balance Sheet or the Income Statement.
    • It is important for businesses to track cash flow to ensure they have sufficient funds to meet their financial obligations.

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    Related Documents

    Accounting Chapter 2 (1).pdf

    Description

    This quiz covers the essential concepts of the Income Statement, detailing how profit is calculated over time. It explains various components such as revenue, COGS, and operating expenses, along with the relationship between the Income Statement and Balance Sheet. Test your understanding of these fundamental financial principles.

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