Kershner Says: "Our Income Statement Should Be Looking Good This

question 132

Short Answer

Kershner says: "Our income statement should be looking good this year. We've been doing excellent business this year, so we have a lot of gross sales. The company should be in good shape."
Michaels replies: "It remains to be seen how our income statement will look overall. In spite of strong sales revenue, the overall income statement might not be as good as we might hope."
Which of the following points out a flaw in Kershner's reasoning?
Kershner is not accounting for all of the possible sources of revenue for the company.
Kershner is not including owners' equity as part of sales revenue.
Income statements are not as important as balance sheets in determining a company's fiscal health.
Many employees are not happy with the direction the company is headed.
Kershner is not accounting for the contribution that expenses will make to the income statement.

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Definitions:

Retained Earnings

The portion of a company's net income that is not distributed to shareholders as dividends but is retained by the company to reinvest in its core business or to pay debt.

Accounts Payable

The amounts owed by a business to its suppliers or creditors for goods and services received but not yet paid for.

Spreadsheet

A digital tool that organizes data in columns and rows, commonly used for calculations and data analysis.

Cash Flows

The complete volume of financial transactions entering and exiting a business, with a key effect on its financial fluidity.