Question

In hix Principles of Accounting class, Professor Julian will lecture to his students today regarding the income statement. Which of the following is incorrect regarding the Income statement?

O it is sometimes called the statement of income and expenses.
O It is sometimes called the earnings staternent.
O The difference between income and expenses is normally referred to as a cash surplus or a cash deficit for an individual.
O is a summary of a firm's revenues and expenses for an indefinite period.

Answer 1

The incorrect statement about the Income Statement is that the difference between income and expenses is referred to as a cash surplus or deficit. Rather, it is called net income or net loss and includes non-cash items. Also, the Income Statement covers a specific accounting period, not an indefinite one.

Step-by-step explanation:

The incorrect statement regarding the Income Statement is that "The difference between income and expenses is normally referred to as a cash surplus or a cash deficit for an individual." In accounting terms, the difference between a company's total revenue and total expenses is referred to as net income or net loss, not as a cash surplus or deficit. This is because the Income Statement includes non-cash items such as depreciation and amortization, and is based on the accrual principle, not just the cash transactions.

Moreover, the Income Statement does not cover an indefinite period; it represents financial performance over a specific accounting period, typically a quarter or a year. This period is often referred to as the fiscal year, which, for government budgets in the United States, runs from October 1 to September 30 of the following year. However, for businesses, the fiscal year can vary. When discussing profit, it's important to differentiate between accounting profit and economic profit. Accounting profit is the simple difference between total revenue and explicit costs, whereas economic profit also takes into account implicit costs.