CXC Principles of Accounts: Financial Statements

Question 1

What is the primary purpose of the Income Statement?

Accepted Answer

To show the revenues and expenses of a business over a period

Answer

The Income Statement reports a business's revenues and expenses over a specific accounting period, resulting in a net profit or net loss.

Question 2

Which of the following is classified as revenue on an Income Statement?

Accepted Answer

Sales income

Answer

Sales income is revenue — it is money earned from the business's primary trading operations.

Question 3

The formula for calculating Gross Profit is:

Accepted Answer

Net Sales − Cost of Goods Sold

Answer

Gross Profit = Net Sales minus Cost of Goods Sold (COGS), representing profit earned before deducting operating expenses.

Question 4

Net Profit is calculated as:

Accepted Answer

Gross Profit − Operating Expenses

Answer

Net Profit = Gross Profit minus all Operating Expenses, representing the final profit after all costs have been deducted.

Question 5

Which of the following would appear as an expense on the Income Statement?

Accepted Answer

Salaries paid to employees

Answer

Salaries are an operating expense incurred in running the business and are recorded on the Income Statement.

CXC - Caribbean Examinations Council Practice Test