48. Which two items on an income statement result in decreased net income if they are increased? (Choose 2)
Answer: B, E
Cost of Goods Sold and Interest Expense result in decreased net income if they are increased.
An increase in Cost of Goods Sold (COGS) and Interest Expense directly reduces net income on an income statement. This is because both items represent expenses that, when higher, diminish the overall profitability of a business.
A) Sales
Increasing sales typically leads to higher revenues, which usually increases net income, not decrease it. Therefore, this option does not contribute to reduced net income.
B) Cost of Goods Sold
An increase in Cost of Goods Sold directly impacts net income by raising the expenses associated with producing goods sold. Higher COGS means less gross profit, resulting in a lower net income.
C) Gains
Gains represent income from non-operational activities, such as selling an asset for more than its carrying value. An increase in gains would typically increase net income, making this option incorrect.
D) Gross Profit
Gross Profit is derived from sales minus COGS. While a decrease in gross profit could lead to lower net income, an increase in gross profit would not directly contribute to a decrease in net income.
E) Interest Expense
Interest Expense is a financial cost incurred by borrowing. An increase in interest expense reduces net income as it adds to the total expenses a company must cover, making this option correct.
F) Administrative Expenses
Administrative Expenses are part of operating costs. An increase in these expenses would lead to a decrease in net income, but it is not one of the two specified correct answers for this question.
G) Depreciation
Depreciation is a non-cash expense that reduces net income over time. While an increase in depreciation would also lead to a decrease in net income, it is not among the two correct answers identified in the question.
Conclusion
Cost of Goods Sold and Interest Expense are the two items on an income statement whose increases lead to decreased net income. While other options may also affect net income, they do not align with the specific query regarding which two result in a decrease when increased.