Chapter 5, The Disclosure Process, Self-Study Quiz 1, Exercise 1

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Explanation

Gross profit is the difference in the cost of goods sold and sales. 

 

Operating income is the difference between operating expenses and gross profits.

 

Current assets are owned by a business for a short term or within a single operating cycle.

 

The payment of rent has no effect on the gross profit because rent is not considered while determining the gross profit. However, it decreases the income from operations by $200 because the rent expenses are considered as operating costs. The payment of rent also reduces the cash balance by $200, which is a part of current assets.

Verified Answer

The transaction shows no effect on the gross profit, while it reduces the current assets and income from operations by $200.

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