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1.
A company's cost of sales represents all of the expenses directly incurred in _______.
Creating goods or services. Cost of sales is also known as cost of goods sold or cost of services.
2.
Which of the following best measures the results of a company's primary business?
Operating income. Operating income measures the results of a company's main operations or lines of business. Gross profit measures the markup of a company's goods or services but does not include certain overhead expenses. Net income often includes other items, such as interest expense, interest income, and one-time charges.
3.
When a company buys a building, it normally records the entire cost of the asset as an up-front expense on the income statement.
False. The company would record the price on the balance sheet and then, each year, take a part of that cost and expense it on the income statement as a depreciation expense. This is an example of accrual accounting.
4.
A company's sales, minus its cost of sales, is known as _______.
Gross profit. Gross profit is defined as sales (or revenue) minus cost of sales.
5.
Different companies recognizing revenue in different ways.
True. How a company recognizes revenue will depend on the nature of its revenue stream. For example, you might pay only once for a service at one company, but several times over time (think insurance premiums) at another place.
