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How is Income from Operations determined? A) Net Sales - Selling Expenses - Administrative Expenses Gross Profit - Cost of Goods Sold + Selling Expenses Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses Gross Profit + Cost of Goods Sold

How is Income from Operations determined? A) Net Sales - Selling Expenses - Administrative Expenses Gross Profit - Cost of Goods Sold + Selling Expenses Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses Gross Profit + Cost of Goods Sold

Principles of Accounting Volume 1
Principles of Accounting Volume 1
19th Edition
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax
Chapter6: Merchandising Transactions
Section: Chapter Questions
Problem 20MC: A multi-step income statement ________. A. separates cost of goods sold from operating expenses B....
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### How is Income from Operations determined? To calculate Income from Operations, we need to understand the formula that includes the various components: **Options:** 1. **A.** Net Sales - Selling Expenses - Administrative Expenses 2. **B.** Gross Profit - Cost of Goods Sold + Selling Expenses 3. **C.** Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses 4. **D.** Gross Profit + Cost of Goods Sold ### Explanation: Let's break down each option to understand how Income from Operations is calculated. 1. **Option A:** - **Net Sales - Selling Expenses - Administrative Expenses** - This option considers that Income from Operations can be derived by subtracting Selling and Administrative expenses from Net Sales. 2. **Option B:** - **Gross Profit - Cost of Goods Sold + Selling Expenses** - This option does not follow the standard accounting practice, since it recalculates the Cost of Goods Sold after obtaining Gross Profit, which does not logically follow. 3. **Option C:** - **Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses** - This is the correct formula for Income from Operations. Starting from Net Sales, we subtract Cost of Goods Sold (to get Gross Profit), and then further subtract Selling and Administrative expenses. 4. **Option D:** - **Gross Profit + Cost of Goods Sold** - This formula does not provide the correct calculation, as it adds Cost of Goods Sold back to Gross Profit, which is not logical. By analyzing the provided options, we can determine that the correct formula for calculating Income from Operations is represented by Option C: **Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses**
Transcribed Image Text:### How is Income from Operations determined? To calculate Income from Operations, we need to understand the formula that includes the various components: **Options:** 1. **A.** Net Sales - Selling Expenses - Administrative Expenses 2. **B.** Gross Profit - Cost of Goods Sold + Selling Expenses 3. **C.** Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses 4. **D.** Gross Profit + Cost of Goods Sold ### Explanation: Let's break down each option to understand how Income from Operations is calculated. 1. **Option A:** - **Net Sales - Selling Expenses - Administrative Expenses** - This option considers that Income from Operations can be derived by subtracting Selling and Administrative expenses from Net Sales. 2. **Option B:** - **Gross Profit - Cost of Goods Sold + Selling Expenses** - This option does not follow the standard accounting practice, since it recalculates the Cost of Goods Sold after obtaining Gross Profit, which does not logically follow. 3. **Option C:** - **Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses** - This is the correct formula for Income from Operations. Starting from Net Sales, we subtract Cost of Goods Sold (to get Gross Profit), and then further subtract Selling and Administrative expenses. 4. **Option D:** - **Gross Profit + Cost of Goods Sold** - This formula does not provide the correct calculation, as it adds Cost of Goods Sold back to Gross Profit, which is not logical. By analyzing the provided options, we can determine that the correct formula for calculating Income from Operations is represented by Option C: **Net Sales - Cost of Goods Sold - Selling Expenses - Administrative Expenses**
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