Income statement MCQs

By: Prof. Dr. Fazal Rehman | Last updated: May 21, 2025

1. : In which of the following form of Pay Statement, the total of all expenses is taken from the total of all revenues?
(A) Multiple-step form
(B) Account form
(C) Report form
(D) Single-step form

2. : Which of the following would affect the gross profit rate if sales remain continuous?
(A) An increase in advertising expense
(B) A decrease in depreciation expense
(C) An increase in cost of goods sold
(D) A decrease in insurance expense

3. : What are the effects of a correcting entry on the financial statements?
(A) Match revenues and expenditures
(B) Increase net income
(C) Increase the accuracy of balance sheet and income statement
(D) Match revenues and assets

4. : Which of the following is TRUE?
(A) The income statement reports only revenue for which cash was received at the point of sale
(B) The income statement reports the financial position of a business at a particular point in time
(C) The income statement is sometimes called the statement of operations
(D) The income statement reports revenues, liabilities, expenses and

5. : A firm paid Rs. 800,000 in dividends over the last period. The beginning and ending retained earnings account balances were Rs. 10,100,000 and Rs. 12,500,000 respectively. Assuming a 40% average tax rate, what was the firm’s net income (net profit after taxes)?
(A) Rs. 5,333.33
(B) Rs. 3,209,000
(C) Rs. 2,400,000
(D) Rs. 1,600,000

6. : Which factor would NOT affect the gross profit rate?
(A) An increase in the cost of heating the store
(B) An increase in the price of inventory items
(C) An increase in the sale of luxury items
(D) An increase in the use of “discount pricing” to merchandise sell

7. : Closing entries after calculation transferred to which of the following account?
(A) Revenue account
(B) Common Stock account
(C) Dividends account
(D) Owner’s Capital account

8. : Financial statement(s) that has all temporary accounts is:
(A) Balance Sheet
(B) Income Statement
(C) Cash Flow Statement
(D) Statement of Owner’s Equity

9. : Which of the following is NOT true about the net income?
(A) It is a calculated figure and represents actual cash
(B) It can be distributed among holders of common stock as a dividend
(C) It can be held by the firm as retained earnings
(D) It is obtained by subtracting expenses from the revenues

10. : The expenses which are NOT salaried out of Gross Profit are classified as:
(A) Direct Expenses
(B) General Expenses
(C) Financial Expenses
(D) Selling Expenses

11. : The Trading and Profit and Loss account is also called:
(A) Balance Sheet
(B) Cash Flow Statement
(C) Income Statement
(D) Trial Balance

12. : The Trading and Profit and Loss account is also called:
(A) Balance Sheet
(B) Cash Flow Statement
(C) Income Statement
(D) Trial Balance

13. : Which of the following expenses would normally be classified as non-operating expenses on a multiple-step income statement?
(A) Interest expense
(B) Depreciation expense
(C) Insurance expense
(D) Salaries expense

14. : All of the following accounts would be closed in Income Summary Account EXCEPT:
(A) Commission earned account
(B) Prepaid insurance
(C) Salaries Expense account
(D) Wages account

15. : At the end of a period, which of the following accounts would not be closed to the income summary account?
(A) Rent expense
(B) Revenue earned
(C) Wages expense
(D) Accumulated depreciation

16. : Which of the following financial reports shows the profitability of a business?
(A) Income statement
(B) Balance sheet
(C) Cash flow statement
(D) Statement of changes in equity

17. : The expenses related to the main operations of business are referred as
(A) Administration expense
(B) Non-administration expense
(C) Selling expenses
(D) Operating expenses