1. What measurement question is answered by the income statement but NOT the balance sheet?

• ✅ How did you perform?

• ❌ What do you own?

• ❌ What do you know?

• ❌ What do you owe?

Explanation:
The income statement shows performance over time; balance sheet shows position.

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2. Which statement shows what occurred during a period that changed financial position?

• ❌ Both balance sheet and income statement

• ❌ Statement of cash flows

• ✅ Income statement

• ❌ Balance sheet

Explanation:
Income statement tracks performance over a period; balance sheet is a snapshot.

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3. Which account appears on the income statement?

• ❌ Revenue

• ❌ Cost of goods sold

• ❌ Selling, general, and administrative expense

• ✅ All of the above

Explanation:
All listed items are income-statement accounts.

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4. Buying a sandwich counts as revenue for the shop. True or false?

• ✅ True

• ❌ False

Explanation:
Revenue arises from normal operations — selling food.

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5. Revenue must come from central business activity.

• ✅ True

• ❌ False

Explanation:
Non-core income is “other income,” not revenue.

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6. Revenue − COGS = ?

• ❌ Net income

• ❌ Total expenses

• ❌ Income taxes

• ✅ Gross profit

Explanation:
Gross profit measures core profitability.

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7. Income taxes are deducted to calculate net income.

• ✅ True

• ❌ False

Explanation:
Net income = profit after taxes.

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8. Athletic apparel store selling a cupcake: is it revenue?

• ❌ True

• ✅ False

Explanation:
Selling cupcakes is not central to an apparel store → recorded as other income.

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9. Income statement represents a substitute attribute for a company’s…

• ✅ Performance

• ❌ Position

• ❌ Liquidity

• ❌ All of the above

Explanation:
It measures performance, not position or liquidity.

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10. What are “goods” in cost of goods sold?

• ❌ Assets purchased with intent to be sold

• ❌ Assets manufactured with intent to be sold

• ✅ Both of the above

• ❌ None of the above

Explanation:
COGS includes purchased goods and manufactured goods.

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11. No relationship between COGS and inventory?

• ❌ True

• ✅ False

Explanation:
COGS comes directly from inventory flow.

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12. Goods available = COGS + ending inventory. True or false?

• ✅ True

• ❌ False

Explanation:
Beginning inventory + purchases = COGS + ending inventory.

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13. Which is NOT a cost flow assumption?

• ✅ SIFO

• ❌ Average cost

• ❌ FIFO

• ❌ LIFO

Explanation:
SIFO is not used in accounting.

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14. Indicator of performance and future prospects?

• ❌ Average cost

• ❌ Cost of goods sold

• ❌ LIFO

• ✅ Gross profit

Explanation:
Gross profit indicates pricing power and profitability.

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15. Cost flow assumption does NOT need to match physical flow?

• ✅ True

• ❌ False

Explanation:
Accounting method can differ from actual inventory movement.

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16. Large gross profit suggests what?

• ❌ Less risk to changes in manufacturing cost

• ✅ Less risk to small changes in BOTH purchasing & manufacturing price

• ❌ More risk to manufacturing

• ❌ Less risk to purchasing only

Explanation:
Higher gross profit margin provides cushion against cost changes.

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17. Another name for COGS?

• ✅ Cost of sales

• ❌ Revenue

• ❌ Cost of assets

• ❌ All of the above

Explanation:
COGS is often labeled “Cost of sales.”

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18. FIFO uses cost of earliest inventory even if not physically sold. True?

• ✅ True

• ❌ False

Explanation:
FIFO is an assumption unrelated to actual item sold.

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19. Average cost assigns cost how?

• ❌ Last-in-first-out approach

• ❌ Estimate average cost of remaining goods

• ✅ Weighted average of goods available for sale assigned to each item sold

• ❌ None

Explanation:
Average cost = total cost ÷ total units available.

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20. COGS is found on both balance sheet and income statement?

• ❌ True

• ✅ False

Explanation:
COGS appears only on the income statement; balance sheet shows inventory.

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🧾 Summary Table