Multiple Choice
Finished goods inventory is reported on the:
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1. Introduction to Accounting
The Financial Statements
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An income statement reports:
A
The changes in equity from owner investments and distributions
B
The revenues and expenses of a company over a specific period of time
C
The financial position of a company at a specific point in time
D
The cash inflows and outflows during a period
Verified step by step guidance1
Step 1: Understand the purpose of an income statement. An income statement is a financial report that summarizes a company's revenues and expenses over a specific period of time, such as a month, quarter, or year.
Step 2: Clarify the distinction between an income statement and other financial statements. For example, a balance sheet reports the financial position of a company at a specific point in time, while a cash flow statement shows cash inflows and outflows during a period.
Step 3: Identify the components of an income statement. These typically include revenues (sales, service income, etc.), expenses (cost of goods sold, operating expenses, etc.), and net income or loss (calculated as revenues minus expenses).
Step 4: Relate the income statement to the accounting equation. The net income or loss reported on the income statement impacts the equity section of the balance sheet, as it reflects changes in retained earnings.
Step 5: Confirm the correct answer by matching the description provided in the problem to the purpose of an income statement. The correct answer is: 'The revenues and expenses of a company over a specific period of time.'
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The Financial Statements practice set
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