Question

1)True or False: Accounts receivable capture sales and accounts payable capture COGS

2)True or False: Per the flow of the Income Statement, we should deduct tax expenses and then interest expenses in order to obtain net income, which is often referred to as the "bottom line."

3)True or False: Depreciation is added to earnings on the statement of cash flows because it was included in COGS on the Income Statemet

4)True or False:EBIT stands for " earnings before income taxes"

5)The Financial statement summarizing a firm's profitability over a period of time is the:

a)balance sheet b) income statement c)statement of cash flows d)none of the listed

Answer 1

• Answer #1

FALSE, Accounts receivables capture sales BUT Accounts Payable capture and are related with PURCHSES on account.

• Answer #2

FALSE, first Interest Expenses is deducted and then Income tax is calculated on resultant figure and is deducted to obtain Net Income.

• Answer #3

FALSE, because depreciation is added to Net Income because it’s a NON CASH ITEM that has reduced Net Income in the Income Statement and hence it is added back.

• Answer #4

FALSE, because EBIT stands for “Earnings before Interest and Taxes”

• Answer #5

Answer = Option ‘B’ Income Statement