Activity 12 - Income Statement and Balance Sheet

What is the primary purpose of an income statement?

• To show the financial position of a company at a specific point in time

• To provide a summary of a company's revenues and expenses over a period

• To list all the assets and liabilities of a company

• To calculate the cash flow of a company

Which of the following is a component of a balance sheet?

• Revenue

• Expenses

• Assets

• Net Income

According to the revenue recognition principle, when should revenue be recognised?

• When cash is received

• When the product is delivered or service is performed

• At the end of the fiscal year

• When the invoice is sent

Which of the following is an example of an operating expense?

• Interest expense

• Cost of goods sold

• Depreciation

• Income tax

What is the primary difference between current and non-current liabilities?

• Current liabilities are larger in amount than non-current liabilities

• Current liabilities are due within one year, while non-current liabilities are due after one year

• Current liabilities are tax-related, while non-current liabilities are not

• Current liabilities are always interest-bearing, while non-current liabilities are not

Which of the following is considered a current asset?

• Land

• Equipment

• Inventory

• Goodwill

What does the current ratio measure?

• The profitability of a company

• The efficiency of a company's operations

• The liquidity of a company

• The solvency of a company

How is gross profit calculated on an income statement?

• Revenue minus operating expenses

• Revenue minus cost of goods sold

• Revenue minus net income

• Revenue minus taxes

Which financial ratio is used to assess a company's ability to pay its short-term obligations?

• Debt-to-equity ratio

• Current ratio

• Return on equity

• Price-to-earnings ratio

What is the formula for calculating the debt-to-equity ratio?