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Stocks 301: The Income Statement

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1.
'Sales' is another word for revenue.
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True. The two normally mean the same thing, though 'revenue' is more commonly used.
2.
Under accrual accounting, a company recognizes revenue when _______.
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The company has earned it. A company recognizes revenue when it is earned, determined by when a company sells its goods or provides its services. Under accrual accounting, revenue is not necessarily recognized when cash is received.
3.
A company's cost of sales represents all of the expenses directly incurred in _______.
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Creating goods or services. Cost of sales is also known as cost of goods sold or cost of services.
4.
Which of the following expenses is subtracted from sales when calculating operating profit?
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SGA. Operating profit is sometimes called EBIT, or earnings before interest and taxes. Cost of goods sold and SGA are two of the main expenses subtracted from revenue in calculating operating profit.
5.
Which of the following best measures the results of a company's primary business?
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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.