Kershner says: "Our income statement should be looking good this year. We've been doing excellent business this year, so we have a lot of gross sales. The company should be in good shape." Michaels replies: "It remains to be seen how our income statement will look overall. In spite of strong sales revenue, the overall income statement might not be as good as we might hope."
Which of the following points out a flaw in Kershner's reasoning?
A) Kershner is not accounting for all of the possible sources of revenue for the company.
B) Kershner is not including owners' equity as part of sales revenue.
C) Income statements are not as important as balance sheets in determining a company's fiscal health.
D) Many employees are not happy with the direction the company is headed.
E) Kershner is not accounting for the contribution that expenses will make to the income statement.

Question

Quizplus · Accepted Answer

Kershner is only considering gross sales and not taking into account the contribution of expenses to the income statement. It is important to consider both revenue and expenses in order to accurately assess the company's profitability. Therefore, Kershner's reasoning is flawed.

Kershner Says: "Our Income Statement Should Be Looking Good This