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Questions and Answers
Which one of these is true about the fiscal year?
Which one of these is true about the fiscal year?
- All publicly traded US companies use the fiscal year
- The fiscal year is used to measure income (correct)
- Each company defines the fiscal year in the same way
- Financial statements are not prepared for interim periods
What is the definition of revenue?
What is the definition of revenue?
- The increase in net assets from the sale of goods and services (correct)
- The decrease in net assets from the sale of goods and services
- The total cumulative owners' equity generated by income
- The excess of revenues over expenses
What is the cost of goods sold?
What is the cost of goods sold?
- The total cumulative owners' equity generated by income
- The expenses incurred by a company in providing products and services
- The excess of revenues over expenses
- The original acquisition cost of the inventory that a company sells to customers (correct)
Which of the following is a requirement for revenues to be recognized under accrual basis?
Which of the following is a requirement for revenues to be recognized under accrual basis?
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What is the purpose of the matching method in recognizing revenues?
What is the purpose of the matching method in recognizing revenues?
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What is the net income on an income statement?
What is the net income on an income statement?
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Where are cash dividends recorded in financial statements?
Where are cash dividends recorded in financial statements?
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Study Notes
Fiscal Year
- A fiscal year is a 12-month period used for budgeting, forecasting, and financial reporting.
Revenue
- Revenue is the income generated from a company's sales of goods or services.
Cost of Goods Sold
- Cost of Goods Sold (COGS) is the direct cost of producing and selling a company's products or services.
Revenue Recognition
- Under accrual basis, revenues are recognized when they are earned, regardless of when cash is received.
- A requirement for revenue recognition is that the revenues must be earned and realizable.
Matching Principle
- The matching principle is an accounting principle that requires revenues to be matched with the expenses incurred to generate those revenues.
Net Income
- Net income is the income earned by a company, calculated by subtracting total expenses from total revenues.
Cash Dividends
- Cash dividends are recorded as a reduction in retained earnings on the balance sheet, not as an expense on the income statement.
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Description
Test your knowledge on revenues and expenses in the context of interim financial statements. Learn about how companies measure income, define the fiscal year, and prepare financial statements for interim periods.
