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Finishing Out the Income Statement and Managing Cash Quiz :Understanding Financial Statements: Company Performance (Fundamentals of Accounting Specialization) Answers 2025

Question 1

What represents outlays of resources as part of normal operating activities?

  • ❌ Liabilities

  • ❌ Revenue

  • ❌ Assets

  • ✅ Expenses

Explanation:
Expenses are costs incurred during normal operations (wages, rent, utilities, etc.).

Question 2

Expenses are associated with operating transactions that …

  • ❌ Decrease company assets AND increase company liabilities

  • ❌ Increase company liabilities

  • ❌ Increase company assets

  • ✅ Decrease company assets

Explanation:
Expenses usually reduce assets (cash) or increase liabilities, but the primary effect = decrease assets.

Question 3

Employee wages are shown as an expense. True or false?

  • ✅ True

  • ❌ False

Explanation:
Wages are an operating expense on the income statement.

Question 4

Advertising expense appears only on the balance sheet?

  • ❌ True

  • ✅ False

Explanation:
Advertising is an income-statement expense, not a balance-sheet item.

Question 5

Which is an example of an expense?

  • ❌ Salaries and wages

  • ❌ Advertising expense

  • ❌ SG&A

  • ✅ All of the above

Explanation:
All are operating expenses.

Question 6

Expensive mixer should be depreciated over years. True or false?

  • ✅ True

  • ❌ False

Explanation:
Long-term assets are capitalized and depreciated, not expensed immediately.

Question 7

What is recorded if bakery sells its mixer?

  • ❌ Revenue

  • ❌ Asset

  • ✅ Gain/loss on sale of equipment

  • ❌ None

Explanation:
Selling long-term assets produces gain or loss, not revenue.

Question 8

Depreciation spreads cost over useful life. True or false?

  • ✅ True

  • ❌ False

Question 9

Gain/loss from unusual & infrequent event is called:

  • ❌ Unusual gain/loss

  • ❌ Normal gain/loss

  • ✅ Extraordinary gain/loss

  • ❌ All of the above

Explanation:
Unusual + infrequent = extraordinary.

Question 10

Which account is a summary measure of performance?

  • ❌ Total expenses

  • ❌ COGS

  • ❌ Total revenue

  • ✅ Net income

Explanation:
Net income summarizes revenue minus expenses.

Question 11

Which activity could indicate other comprehensive income (OCI)?

  • ❌ Holding investment with changing value

  • ❌ Pension plans

  • ❌ Foreign operations

  • ✅ All of the above

Explanation:
These items often flow to OCI.

Question 12

Company MUST prepare OCI even if none exists. True/false?

  • ❌ True

  • ✅ False

Explanation:
If no OCI items exist, no separate statement needed.

Question 13

Which statement explains change in cash position?

  • ✅ Statement of cash flows

  • ❌ Income statement

  • ❌ Balance sheet

  • ❌ Statement of comprehensive income

Question 14

“Cash flow” = cash in/out from transactions. True/false?

  • ✅ True

  • ❌ False

Question 15

Which is NOT a cash flow statement section?

  • ❌ Financing

  • ❌ Operating

  • ✅ Normal activities

  • ❌ Investing

Question 16

Indirect method includes adjustments for non-cash items. True/false?

  • ✅ True

  • ❌ False

Question 17

Which is an operating activities adjustment?

  • ❌ Items affecting net income & cash but not operating

  • ❌ Timing differences only

  • ❌ Non-cash items only

  • ✅ All of the above

Explanation:
Operating adjustments include all these categories.

Question 18

Which relates to long-term assets?

  • ❌ Operating

  • ✅ Investing

  • ❌ Financing

  • ❌ All

Question 19

Which relates to long-term liabilities & equity transactions?

  • ❌ Operating

  • ❌ Investing

  • ✅ Financing

  • ❌ All

Question 20

Cash flow statement ends with sum of all inflows/outflows. True/false?

  • ✅ True

  • ❌ False