Question

In which expense section of the income statement should each be reported: (a) selling, (b) administrative, or (c) other?

1) Selling
2) Administrative
3) Other

Answer 1

On an income statement, expenses are classified into selling, administrative, or other categories. Selling expenses are related to sales activities, administrative expenses to general management, and other expenses to non-operational costs. The roles listed such as sales, clerical or office, and executive positions would typically be categorized under selling and administrative expenses respectively.

Step-by-step explanation:

On an income statement, expenses are categorized based on their nature and function within the business operations. For the different types of expenses you mentioned:

1. Selling expenses are costs directly associated with the selling activities of a business. Examples include sales staff salaries, advertising, and shipping costs.
2. Administrative expenses are costs related to the general running of the business that are not linked directly to the selling or production of goods and services. Examples include salaries for clerical or office workers, manager and executive compensation, and office supplies.
3. Other expenses are costs that cannot be directly associated with selling or administrative functions, such as interest expenses, losses from asset disposals, or unusual or infrequent expenses.

For the specific roles you've listed:

• Sales should be reported under selling expenses.
• Clerical or office positions should be categorized as administrative expenses.
• Installation and repair might typically be included in selling because they could be directly related to the sale of goods, especially in industries like electronics or appliances where post-sale support is important.
• Construction or mining would generally fall under cost of goods sold (COGS) if directly related to the manufacturing or extraction process of the products sold by the company. However, they could be categorized differently if they relate to maintenance or administrative activities.
• Manager, executive, or official salaries usually fall under administrative expenses as they relate to the overarching operation of the business as a whole.