Question

In my Accounting class we are being asked to respond to/comment on different things that students post. My professor is requiring a "substantive" response with references to back up what is being said. I need some help with a response to this post. Any help you can give me will be GREATLY appreciated!

The first step of the multistep income statement is the gross profit, and it’s obtained by deducting the cost of goods sold from the total sales. This shows how profitable a company is in producing or selling its products. Investors also use the gross profit to determine the profitability of the business activities and the financial health of the company. The second step is selling and admin expenses. The selling expenses are the costs incurred when selling your goods to consumers, which may also include your marketing and salary of personnel (Multi-Step Income Statement). Admin expenses are costs that are indirectly related to the exact sale of goods, and may include salary of the office personnel, and etc. The third section is the non-operating head, which will list all the business incomes and expenses that aren’t related to the main activities of the business. For example, this could include would be the costs of a lawsuit (Multi-Step Income Statement). It would be important for a company to break out its income in this manner, because it helps to analyze the performance of the business, in order to use this information to gain future investors, stakeholders, and other lenders.

Answer 1

Answer :

As you said the company need to prepare statements showing as much as Information which will predict the yealy activities. You already explains it very good about GP, Selling Expenses and Admin Expenses.

I recommend you to get some knowledge about Financial Ratios, which will help you to present your reasonong better.

An example : Asset Turnover Ratio; which show how much time a company is generating Sales as compared to Assets.

Hope this will help you.

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