Which of the following points out a flaw in Kershner’s reasoning? A)

QUESTION

Which of the following points out a flaw in Kershner’s reasoning?

A) Kershner is not accounting for all of the possible sources of revenue for the company.
B) Kershner is not including owners’ equity as part of sales revenue.
C) Income statements are not as important as balance sheets in determining a company’s fiscal health.
D) Many employees are not happy with the direction the company is headed.
E) Kershner is not accounting for the contribution that expenses will make to the income statement.

ANSWER

Answer: E
Explanation: E) Expenses must be subtracted from revenues to arrive at a complete income statement. Choice A: There is no reason to think that the company has additional sources of revenue not accounted for by gross sales. Choice B: Kershner is right not to include owners’ equity as part of sales revenue. Choice C: Kershner doesn’t make this claim. Choice D is not directly relevant to the company’s income statement.