Which of the following statements is correct?
A)The term single-step income statement is sometimes used to describe a classified income statement.
B)Salaries of office employees would be grouped with the selling expenses in the Operating Expenses section of the income statement.
C)If a business is to earn a net income, the gross profit on sales must be greater than operating expenses.
D)Sales less Operating Expenses equals Gross Profit.

Question

Quizplus · Accepted Answer

This statement is correct according to the basic formula for calculating net income: Net Income = Gross Profit - Operating Expenses. If the gross profit is less than the operating expenses, the business will show a net loss rather than a net income. Therefore, for a business to earn a net income, the gross profit on sales must be greater than operating expenses.

Option A is incorrect because a single-step income statement is a type of income statement that doesn't categorize expenses as operating, selling, general and administrative.

Option B is incorrect because salaries of office employees are typically included as part of general and administrative expenses, not selling expenses.

Option D is incorrect because Gross Profit is equal to Sales minus Cost of Goods Sold, not Operating Expenses.

Which of the Following Statements Is Correct