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

On a common-sized single-step income statement, how is the current year's operating expense typically presented?

As a percentage of gross profit

As a percentage of net income

As a percentage of total assets

As a percentage of total revenues

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Verified step by step guidance

Understand the concept of a common-sized single-step income statement: This type of income statement expresses each line item as a percentage of a common base, typically total revenues. This allows for easier comparison across periods or companies.

Identify the base for operating expenses: In a common-sized single-step income statement, operating expenses are presented as a percentage of total revenues, not gross profit, net income, or total assets.

Clarify why total revenues are used: Total revenues serve as the denominator because they represent the overall inflow of economic benefits during the period, making it a logical base for expressing operating expenses as a proportion of the company's activity.

Relate operating expenses to total revenues: To calculate the percentage, divide the operating expenses by total revenues and multiply by 100. This shows the proportion of revenues consumed by operating expenses.

Apply this understanding to the problem: The correct presentation of operating expenses on a common-sized single-step income statement is 'as a percentage of total revenues,' aligning with the standard practice in financial accounting.