When Expenses Are Presented by Function in the Income Statement

question 82

Multiple Choice

When expenses are presented by function in the income statement,

• A) they should be presented by type of expense (e.g., depreciation, purchases, salaries).
• B) they should be reported as part of other comprehensive income.
• C) their cash flow predictive value is increased.
• D) more professional judgment is required to allocate expenses between functions.

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Definitions:

Operating Activities

Day-to-day actions that are involved in running a business, which include production, sales, and material purchasing, related to the company's core business operations.

Return on Equity

Return on Equity (ROE) measures the rate of return that the owners of common stock of a company receive on their shareholdings, reflecting the efficiency with which their capital is utilized.

Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity used to finance a company's assets.

Total Asset Turnover

A financial metric that measures a company's efficiency in using its assets to generate revenue.