Answer the following statements true (T) or false (F)

Question

1. The operating cycle is measured based on the time it takes to convert an investment in cash into inventory and then back into an invoiced sale to customers.
2. The purpose of the income statement is to describe how much revenue was generated and what the associated level of expenses was.
3. Cost of goods sold (COGS) includes marketing and advertising costs.
4. Operating expenses (OPEX) includes electricity bills tied to manufacturing facilities.

Answer 1

1.False – The operating cycle is measured based on the time it takes to convert an investment in cash into inventory and then back into cash proceeds from its sale to customers. An invoice is not cash.
2.True – by definition
3.False – The cost of goods sold (COGS) includes everything directly connected with the purchasing or production of the services or products that are ultimately sold. These expenses include the wages of the direct labor involved in the production of the product or service, the materials used, parts or components purchased, and repairs made to the equipment of the facility used for production of the product or service. These are expenses directly related to the venture’s production of goods or services
4.False – The operating expenses, also known as OPEX, represent a category of expenditure directly connected with operating the venture and not directly connected with the production of the product or service. This category includes accounting and legal services, advertising and marketing costs, insurance coverage, office equipment and supplies, office rent (factory rent for production may or may not be included in the COGS depending on the accountant), salaries not directly tied to the production process, utility bills (could also be classified in the COGS depending on the type of business), depreciation (allocation of the cost of a tangible asset spread throughout its economic life), and amortization (allocation of an intangible asset’s cost over that asset’s useful life).