Unit Review Sheet Answers

Chapter 3/Unit 4 Review Sheet 4/Preparing the Income Statement

Answer or complete the following.
K, C 1. (a) The name of the statement that presents the revenue, expenses, and net income (or net loss)
income statement
is the __________________________________.

(b) The statement that presents the assets, liabilities, and owner’s equity is the ________________
balance sheet
___________________________________________________________________________.

(c) An inflow of assets from customers, earned from the sale of goods or services, is___________
revenue
___________________________________________________________________________.
expenses
(d) The costs of goods and services used by a company to bring in revenue are _______________.
net income
(e) When revenue is greater than expenses, the difference is ______________________________.
net loss
(f) When expenses are greater than revenues, the difference is ____________________________.

(g) Underline the appropriate terms in the statements that follow:

Net income increases/decreases equity. Net loss increases/decreases equity.

accounting period
(h) The period of time covered by the financial statements is called the _____________________.

(i) (1) If the revenue is $24 500 and the expenses are $18 000, the net income is $6500
______________.
$3500
(2) If the revenue is $24 500 and the expenses are $28 000, the net loss is ________________.
fiscal period
(j) Another term for accounting period is _____________________________.
calendar year
(k) The twelve-month period from January 1 to December 31 is called the ___________________.
K, C 2. Give examples of each of the following.
Requires that the time period used by a company to prepare
time-period principle: _____________________________________________________________
financial statements be defined and be consistent from one accounting period
_______________________________________________________________________________

to another.
_______________________________________________________________________________

_______________________________________________________________________________
Requires that costs recorded in the expense accounts be matched
matching principle:_______________________________________________________________
with the revenue generated during the same accounting period.
_______________________________________________________________________________

_______________________________________________________________________________

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 Chapter 3/Unit 4 Review Sheet 4/Preparing the Income Statement (cont.)
Requires that revenue be recorded when earned and
accrual basis of accounting:_________________________________________________________

expenses when incurred.
_______________________________________________________________________________

_______________________________________________________________________________
Requires that expenses be recorded only when they are paid for
cash basis of accounting:___________________________________________________________
and revenue be recorded only when the cash is received.
_______________________________________________________________________________

_______________________________________________________________________________

K, T, C, A 3. Prepare the June income statement, in acceptable form, for Gerri’s Services, using the following
information. The list below contains several assets and liabilities. Remember only the revenue
and expense accounts are used to prepare the income statement.

Salaries Expense $ 3 000 Rent Expense $ 2 000

Fees Revenue 9 975 Building 350 000
Mortgage Payable 200 000 Advertising Expense 2 000
Other Revenue 1000 Telephone Expense 176
Miscellaneous Expense 80 G. Weise, Capital 197 000

2 Copyright © 2002 Pearson Education Canada Inc., Toronto, Ontario