CFE – Financial Transactions and Fraud Schemes — Question 24

Which of the following statements is TRUE with regard to the income statement?

Answer options

• A. Gross profit is equal to revenues less operating expenses.
• B. Net profit is the difference between total sales and the cost of goods sold.
• C. A company’s cash balance is usually the first line item listed.
• D. Gross revenue is the total amount of sales before deductions are applied.

Correct answer: B

Explanation

The correct answer is B because net profit is indeed calculated by subtracting the cost of goods sold from total sales. Option A is incorrect as gross profit is calculated by subtracting the cost of goods sold from revenues, not operating expenses. Option C is wrong since the cash balance is not typically the first line item on an income statement, and option D is misleading as it defines gross revenue correctly, but does not pertain to the income statement's main focus.