Question

Which financial statement line item requires details from multiple business processes?

1) Sales on the income statement
2) Cost of goods sold on the income statement
3) Accounts receivable on the balance sheet
4) Accounts payable on the balance sheet

Answer 1

The Cost of Goods Sold (COGS) on the income statement requires details from multiple business processes, as it includes both material and labor costs. It is influenced by purchasing, inventory management, production, and economic factors such as changes in interest rates.

Step-by-step explanation:

The financial statement line item that often requires details from multiple business processes is the Cost of Goods Sold (COGS) on the income statement. COGS reflects the direct costs attributable to the production of the goods sold by a company. This includes the cost of the materials used in creating the goods along with the direct labor costs used to produce the goods. It requires information from various processes such as purchasing, inventory management, and production to calculate accurately.

For example, the flow of goods and services such as imports and exports, as noted in figures which describe international economics, affect the COGS. The current account includes goods and services transactions which influence the calculation of COGS, particularly through the cost of imported materials or products for resale. Similarly, fluctuations in costs due to economic conditions, such as changes in interest rates, can affect the COGS.

Accounts receivable and accounts payable are also influenced by various business processes, including sales and purchasing, respectively, but do not require the same breadth of cost calculation as the COGS.