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

Which of the following best describes the contribution format of an income statement for a retailer?

It groups all operating expenses under a single heading, without showing gross profit or contribution margin.

It presents only net income and omits details about revenues and expenses.

It separates variable costs from fixed costs, showing contribution margin before deducting fixed expenses.

It lists revenues, cost of goods sold, and all expenses together without distinguishing between variable and fixed costs.

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Verified step by step guidance

Understand the concept of a contribution format income statement: This type of income statement is designed to separate costs into variable and fixed categories, making it easier to analyze how changes in sales volume affect profitability.

Identify the key components of a contribution format income statement: It includes revenues, variable costs, contribution margin, fixed costs, and net income. The contribution margin is calculated as revenues minus variable costs.

Recognize the purpose of the contribution margin: The contribution margin represents the amount available to cover fixed costs and contribute to net income. It is a critical metric for decision-making in cost-volume-profit analysis.

Compare the contribution format to other income statement formats: Unlike traditional income statements, which group all operating expenses together, the contribution format explicitly separates variable and fixed costs, providing more detailed insights into cost behavior.

Review the correct answer: The contribution format income statement separates variable costs from fixed costs, showing the contribution margin before deducting fixed expenses. This format is particularly useful for internal management purposes and decision-making.