Which item affects net income in the period?

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Study for the ACFE Accounting Terms Test with interactive quizzes. Prepare with multiple choice questions, each question accompanied by explanations and hints. Ensure your success with our study materials!

Multiple Choice

Which item affects net income in the period?

Explanation:
Net income for a period is determined by revenues minus expenses recognized in that period. Depreciation expense recognized for the period appears on the income statement as an expense, so it reduces the net income reported for that period, even though it doesn’t involve an actual cash outlay at that moment. The other actions don’t hit the income statement in the same way: paying cash dividends and issuing new stock affect the balance sheet and equity, not net income; revenue recognized during the period would also affect net income (by increasing it), but the option highlighted is the expense item that lowers net income in the period.

Net income for a period is determined by revenues minus expenses recognized in that period. Depreciation expense recognized for the period appears on the income statement as an expense, so it reduces the net income reported for that period, even though it doesn’t involve an actual cash outlay at that moment. The other actions don’t hit the income statement in the same way: paying cash dividends and issuing new stock affect the balance sheet and equity, not net income; revenue recognized during the period would also affect net income (by increasing it), but the option highlighted is the expense item that lowers net income in the period.

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