Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Single-step Income Statement

Financial Accounting

4. Merchandising Operations

Single-step Income Statement

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Multiple Choice

Which financial statement is primarily analyzed using the percentage of sales method?

Balance Sheet

Statement of Retained Earnings

Income Statement

Statement of Cash Flows

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Verified step by step guidance

Understand the percentage of sales method: This method is used to estimate financial figures based on a percentage of sales. It is commonly applied to items like expenses, revenues, and other income statement components.

Identify the financial statement that primarily deals with sales and related figures: The Income Statement is the financial statement that reports revenues, expenses, and net income, all of which are directly tied to sales.

Recognize why other financial statements are not primarily analyzed using this method: The Balance Sheet focuses on assets, liabilities, and equity, which are not directly tied to sales percentages. The Statement of Retained Earnings deals with changes in retained earnings, and the Statement of Cash Flows focuses on cash inflows and outflows, neither of which are primarily analyzed using sales percentages.

Conclude that the Income Statement is the correct answer: Since the percentage of sales method is used to analyze items like revenues and expenses, which are reported on the Income Statement, this is the financial statement primarily analyzed using this method.

Apply this understanding to similar problems: Whenever a method involves analyzing revenues or expenses as a percentage of sales, it is likely tied to the Income Statement.