On the Income Statement, which item is a major expense category?

On the Income Statement, which item is a major expense category?

• A. Accounts Receivable
• B. Cost of Goods Sold
• C. Accounts Payable
• D. Cash

Answer: (B)

The main idea here is that the income statement highlights costs tied directly to producing the goods sold. The Cost of Goods Sold captures the direct materials, labor, and allocated overhead used to make the products sold during the period. It is typically one of the largest expense lines and is subtracted from revenue to yield gross profit, showing how much it costs to generate the sales. The other items listed—accounts receivable, accounts payable, and cash—are balance sheet items representing amounts owed by customers, amounts the company owes, and the cash on hand. They affect liquidity and working capital, not a primary expense category on the income statement. So, Cost of Goods Sold is the major expense category.

The main idea here is that the income statement highlights costs tied directly to producing the goods sold. The Cost of Goods Sold captures the direct materials, labor, and allocated overhead used to make the products sold during the period. It is typically one of the largest expense lines and is subtracted from revenue to yield gross profit, showing how much it costs to generate the sales. The other items listed—accounts receivable, accounts payable, and cash—are balance sheet items representing amounts owed by customers, amounts the company owes, and the cash on hand. They affect liquidity and working capital, not a primary expense category on the income statement. So, Cost of Goods Sold is the major expense category.