Multiple Choice
Which financial statement summarizes a company's revenues and expenses to show net income for a specific period, using a single-step approach?
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4. Merchandising Operations
Single-step Income Statement
Multiple Choice
Which of the following accounts would normally be found on a single-step income statement?
A
Retained Earnings
B
Prepaid Insurance
C
Accounts Receivable
D
Sales Revenue
Verified step by step guidance1
Understand the purpose of a single-step income statement: It is a simplified format that lists all revenues together and subtracts all expenses to calculate net income. It does not include detailed classifications like operating and non-operating items.
Identify the type of accounts typically included in a single-step income statement: Only revenue and expense accounts are included, as the focus is on calculating net income. Balance sheet accounts like assets, liabilities, and equity are excluded.
Analyze the given accounts: Retained Earnings, Prepaid Insurance, and Accounts Receivable are balance sheet accounts. Retained Earnings is part of equity, Prepaid Insurance is an asset, and Accounts Receivable is also an asset. These do not appear on the income statement.
Recognize that Sales Revenue is a revenue account: Revenue accounts are included in the single-step income statement because they contribute to the calculation of net income.
Conclude that Sales Revenue is the correct account to be found on a single-step income statement, as it directly relates to the income-generating activities of the business.
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