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Multiple Choice
On a single-step income statement, net income is found by subtracting which of the following from total revenues?
A
Operating expenses only
B
Dividends paid
C
Cost of goods sold only
D
Total expenses
Verified step by step guidance
1
Understand the concept of a single-step income statement: A single-step income statement is a simplified format where all revenues are grouped together, and all expenses are grouped together. Net income is calculated by subtracting total expenses from total revenues.
Identify the components of total revenues: Total revenues include all income generated by the business, such as sales revenue, service revenue, and other income sources.
Identify the components of total expenses: Total expenses include operating expenses, cost of goods sold, and any other expenses incurred during the period.
Recognize that dividends paid are not part of the income statement: Dividends are distributions to shareholders and are reported in the statement of retained earnings, not the income statement.
Apply the formula for net income: Net income is calculated as \( \text{Net Income} = \text{Total Revenues} - \text{Total Expenses} \). Subtract total expenses (which include operating expenses and cost of goods sold) from total revenues to determine net income.