Question
Question 4 1 pts Which of the following is Not true about the statement of profit or loss: The main purpose of the statement is to show the cash movements over a particular accounting period. The statement shows three measures of profit: gross profit, operating profit and profit for the period. Revenue is recognized when the control of the goods or services is passed to the customer. In this statement operating profits are calculated by deducting overheads from gross profit
Answer
4.5
(276 Votes)
Anthony
Professional · Tutor for 6 years
Answer
A
Explanation
This question requires fundamental knowledge of financial statements, especially the statement of profit or loss (often referred to as the income statement). Let's break down each statement:1. "The main purpose of the statement is to show the cash movements over a particular accounting period." This statement is false. The statement of profit or loss doesn't show cash movements. That is the purpose of a cash flow statement.2. "The statement shows three measures of profit: gross profit, operating profit, and profit for the period." This is true. Gross profit is calculated by deducting cost of goods sold from revenue. Operating profit is gross profit minus operating expenses. Profit for the period (also called net profit) is calculated by deducting all expenses, including taxes and interest, from operating profit.3. "Revenue is recognized when the control of the goods or services is passed to the customer." This statement is true according to modern accounting rules. The revenue recognition principle states that income is realized when goods are delivered or services are rendered.4. "In this statement, operating profits are calculated by deducting overheads from gross profit." This statement is also true. Operating profit is gross profit less operating expenses (such as selling and administrative expenses).