Multiple Choice
Which of the following correctly shows the basic format of a balance sheet?
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1. Introduction to Accounting
The Financial Statements
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Which of the following accounts is reported on the income statement?
A
Accounts Payable
B
Prepaid Expenses
C
Retained Earnings
D
Service Revenue
Verified step by step guidance1
Step 1: Understand the purpose of the income statement. The income statement is a financial report that shows a company's revenues, expenses, and net income over a specific period. It focuses on accounts related to the company's operations and profitability.
Step 2: Analyze the given accounts. Accounts Payable and Prepaid Expenses are balance sheet accounts, as they represent liabilities and assets, respectively. Retained Earnings is part of the equity section of the balance sheet and reflects accumulated profits not distributed as dividends.
Step 3: Identify the account related to revenue. Service Revenue is an income statement account because it represents the earnings generated from providing services during the reporting period.
Step 4: Confirm the classification of Service Revenue. Revenue accounts are always reported on the income statement, as they contribute to calculating the net income or loss for the period.
Step 5: Conclude that Service Revenue is the correct answer, as it is the only account listed that appears on the income statement.
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