1. This number tells you the amount of money the company spent to produce the goods it sold during the accounting period.

Revenue or Sales

Operating Expenses

Cost of Sales

Gross Profit

2. Only manufacturing or merchandising companies have cost of sales since they make or buy products to sell to others.

True

False

3. Sales or Revenue minus costs of sales is called

gross profit or sometimes gross margin.

Operating Income

Net Sales

Net Income

4. These are expenses that go toward supporting a companys operations for a given period for example, salaries of administrative personnel and costs, marketing and selling, and, or researching new products

Cost of Sales

Administrative Expenses

Operating Expenses

Cost of Operations

5. Operating expenses are different from costs of sales, which were deducted above, because operating expenses cannot be linked directly to the production of the products or services being sold.

True

False

6. Generally Accepted Accounting Principles (GAAP) indicates that sales or revenue is reported by an organization when

cash must have been received.

the entity must expect to receive cash in the future.

the entity must have paid for all expenses incurred in generating the revenue.

the revenue has been earned by delivery or shipment of the good or service and is realizable