Assuming a company uses the accrual basis of accounting, what is net income? -gr

Question

Assuming a company uses the accrual basis of accounting, what is net income?

-gross sales net of sales reurns and allowances and sales discounts.

-the difference between a company's sales and its cost of goods sold.

-the portion of earnings retained in the company rather than being paid to shareholders as dividends.

-the difference between the amount of cash collected during the year and the amount of cash paid out during the year.

-the difference between the revenues earned and the expenses incurred during the accounting period.

Explanation / Answer

Answer: The difference between the revenues earned and the expenses incurred during the accounting period.

Under the accrual basis of accounting, income is recognized when earned irrespective of whether cash for the same is received or not. Similarly, expenses are recognized when incurred irrespective on when cash is paid for the same. The difference between the revenues earned and expenses incurred is the net income. Hence, the last option is correct.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.