I am trying to understand income statements and blance sheets. I have answered most questions. Please read my current answers for accuracy and help me understand the ones with no answers?

1.) Explain the term cost of sales. Is likely that the balance sheet of this company includes inventory?

My answer: Cost of goods sold (COGS) and Cost of sales are used interchangeably. Cost of sales refers to the seller's cost to produce a product. This cost includes material, labor, and any other cost associated with making the product.As for inventory, yes the inventory is located under current asset of the balance sheet. Monitoring the inventory is very important, if the retailer has too much inventory, then cash flow problems can arise. If the retailer has to little inventory, then that can result of loss of sales to the customer.

2.) Gross profit (margin) is a key piece of financial information. Why is it so important?

My answer: Gross profit margin is a metric that is used to determine the company's financial health. This metric is very important because it shows how much money the company has left over after all associated cost with the production of the product is paid. If a company spends more to produce a good than it brings in, then the company will experience a cash flow problem and may affect the pay of employees and suppliers. Gross Profit Margin can be calculated using the following formula:

Gross Profit Margin = Revenue-COGS/Revenue

3.) Explain operating expenses? What does the term mean?

My answer: Operating expenses are expenditures incurred for day-to-day operations. These activities include, but not limited to, rent, equipment, marketing, and payroll. However, these expenditures are not directly used for production of goods.

4.) Does ABC Company have any employees? Explain.

My answer: Yes, as part of the company income statement, salaries are listed under the operating expenses. In addition, payroll taxes are an indicator that this company has employees. For this particular employee of the company, the salary is $100,000, with payroll taxes of $11,000.

5.) There is an error in the income statement. Property taxes are overstated by $10,000. How is the income statement affected by a correction of property taxes?

My answer: Since the property taxes are overstated by $10,000, the correction would decrease the total operating expenses. By decreasing the operating expenses, this would inherently increase the net income.

6.) What happens to net income if the company hires a new manager at a salary of $80,000?

My answerWith ABC Company hiring a new manager, the net income would decrease. This is only assuming that the new employee is an additional position and not replacing the current employee.

7.) Does the company own any equipment? Is it informative to also check the balance sheet to answer this question? Explain.

My answer: Yes, to determine if the ABC Company owns any equipment, we can look at the income statement to see if any depreciation is reported. If depreciation is reported, then we can also reference balance sheet under long-term assets. In this case, "Equipment (net of depreciation)" is reported.

8.) Does the company have debt? How much debt? Explain how the income statement and balance sheet provide answers to the questions?

9.) How do we know that ABC Company is using the accrual basis of accounting? Hint: Do not forget to look at the balance sheet.

10.) What happens to income statement at the end of the period? Is it continuous or does it close (terminate)?

The income statement is only for a specific accounting period (ex. monthly, quarterly, or annual). Therefore, at the end of the period, it is considered to be closed.

The reference material is below.

\fRevenues S 525,000 Cost of sales 200 000 Gross profit S 325,000 Operating expenses Salaries S 100,000 Lease for ofce 30,000 Advertising and promotion 24,000 Utiliies 12,750 P'ropertv,r taxes 13,000 Payroll taxes 1 1,500 Insurance 3,000 Depreciation 20,000 Miscellaneous expenses 9,000 Total operating expenses 3 233,250 Operating income 5 91,?50 Interest income 5 250 Interest expense 15,000 Net interest expense 14,250 Net income 5 22,000