Quiz Ch 03 – T/F Significance of Operating Income in Business Earnings
Financial Accounting
Thomas, Tietz, and Harrison
12th Edition
Operating income represents profits from the company’s primary operations.
Operating income represents profits from the company’s primary operations.
Expenses are recognized when paid.
Cash-basis accounting disregards crucial information, which is its primary limitation.
The revenue principle requires revenue to be recognized when cash is received in the same period.
The time-period concept requires monthly accounting information reporting in financial statements.
Cash-basis accounting better reflects the time-period concept and revenue principle.
When the current ratio is below 1.0, it indicates that current liabilities are greater than current assets.
Expenses represent the costs of assets consumed and liabilities incurred in generating revenue.
Liquidity refers to the speed of converting an asset into cash.
The company managers are worried about the impact of specific transactions on the ratios utilized in loan contracts.