Which of the following is true about an income statement? a. The income statement accurately represents all cash inflows and outflows for a given period of time. b. The income statement is reported on an accrual basis. c. The income statement is a snapshot of a company's financial position. d. The income statement shows how a company's retained earnings changed over a given period of time.

Question

Business

Lea Hanna

2 June, 03:20

Which of the following is true about an income statement? a. The income statement accurately represents all cash inflows and outflows for a given period of time. b. The income statement is reported on an accrual basis. c. The income statement is a snapshot of a company's financial position. d. The income statement shows how a company's retained earnings changed over a given period of time.

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Xiomara Guerrero · Answer 1

b. The income statement is reported on an accrual basis.

Explanation:

The income statement is a part of the financial statement used to measure the company's performance over a period. It shows the company's net income for a given period derived from the sales less all expenses.

Sales or revenue are recognized as they are earned and not necessarily when cash is received. Hence total sales is made up of the credit and cash sales.

Expenses are also shown as recorded once incurred and not necessarily when cash is paid hence the total expense includes the cash expense and the accrued expense.

As such, the income statement is reported on an accrual basis.