Multiple Choice
Which one of the following is a key financial statement that a new business owner should be prepared to generate?
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1. Introduction to Accounting
The Financial Statements
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Which of the following accounts would NOT be reported on the balance sheet?
A
Accounts Receivable
B
Inventory
C
Service Revenue
D
Retained Earnings
Verified step by step guidance1
Understand the purpose of the balance sheet: The balance sheet is a financial statement that reports a company's assets, liabilities, and equity at a specific point in time. It does not include revenue or expense accounts, which are reported on the income statement.
Identify the accounts listed in the problem: Accounts Receivable, Inventory, Service Revenue, and Retained Earnings.
Classify each account: Accounts Receivable and Inventory are asset accounts, which are reported on the balance sheet. Retained Earnings is an equity account, also reported on the balance sheet. Service Revenue, however, is a revenue account and is reported on the income statement, not the balance sheet.
Recognize the distinction between the balance sheet and income statement: Revenue accounts like Service Revenue reflect the company's earnings during a period and are part of the income statement, not the balance sheet.
Conclude that Service Revenue is the account that would NOT be reported on the balance sheet, as it belongs to the income statement.
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