Multiple Choice
The purpose of the statement of shareholders' equity is to:
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1. Introduction to Accounting
The Financial Statements
Multiple Choice
Which of the following best describes the role of an income statement in accounting?
A
It is a source document used to record original business transactions.
B
It is a document used to authorize payments to suppliers.
C
It is a financial statement that summarizes revenues and expenses over a period.
D
It is a ledger account used to track cash balances.
Verified step by step guidance1
Understand the purpose of an income statement: It is a financial statement that provides a summary of a company's revenues, expenses, and profits or losses over a specific period, typically a month, quarter, or year.
Compare the given options to the definition of an income statement: Evaluate each option to determine which aligns with the purpose of summarizing revenues and expenses.
Option 1: 'It is a source document used to record original business transactions.' This describes documents like invoices or receipts, not an income statement.
Option 2: 'It is a document used to authorize payments to suppliers.' This refers to payment authorizations, not the role of an income statement.
Option 4: 'It is a ledger account used to track cash balances.' This describes a cash ledger account, not an income statement. Therefore, the correct answer is the third option: 'It is a financial statement that summarizes revenues and expenses over a period.'
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