Multiple Choice
Which of the following is NOT one of the four primary financial statements?
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1. Introduction to Accounting
The Financial Statements
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Which item reported on the profit and loss statement (income statement) should match an item on the balance sheet at the end of the accounting period?
A
Gross profit
B
Total revenues
C
Net income
D
Total expenses
Verified step by step guidance1
Understand the relationship between the profit and loss statement (income statement) and the balance sheet. The profit and loss statement summarizes the company's revenues, expenses, and net income for a specific period, while the balance sheet provides a snapshot of the company's financial position at the end of that period.
Identify the key item that connects the two financial statements. Net income from the profit and loss statement is directly linked to the balance sheet because it impacts the equity section, specifically retained earnings.
Recognize that retained earnings on the balance sheet are updated at the end of the accounting period by adding the net income (or subtracting net loss) from the profit and loss statement to the previous period's retained earnings.
Verify that other items listed in the problem, such as gross profit, total revenues, and total expenses, are components of the profit and loss statement but do not directly match an item on the balance sheet. Only net income has this direct connection.
Conclude that net income is the correct answer because it is the item reported on the profit and loss statement that matches retained earnings on the balance sheet at the end of the accounting period.
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