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1.
Which of the following expenses is subtracted from sales when calculating operating profit?
SGA. Operating profit is sometimes called EBIT, or earnings before interest and taxes. Cost of goods sold and SGA are two of the main expenses subtracted from revenue in calculating operating profit.
2.
The expense that represents a piece of equipment's normal wear and tear over time is called what?
Depreciation expense. Depreciation refers to a tangible asset's gradual loss of value over time.
3.
Under accrual accounting, a company records an expense when _______.
The company has incurred it. A company records an expense when it is incurred. Under accrual accounting, expenses are not necessarily incurred when cash is spent.
4.
Different companies recognizing revenue in different ways.
True. How a company recognizes revenue will depend on the nature of its revenue stream. For example, you might pay only once for a service at one company, but several times over time (think insurance premiums) at another place.
5.
When a company buys a building, it normally records the entire cost of the asset as an up-front expense on the income statement.
False. The company would record the price on the balance sheet and then, each year, take a part of that cost and expense it on the income statement as a depreciation expense. This is an example of accrual accounting.
