Which of the following correctly fills in the blanks: 'The two general approaches for preparing an income statement are the _____-step and _____-step approaches'?

• A. cash; accrual
• B. direct; indirect
• C. classified; unclassified
• D. single; multiple

Answer: (D)

Verified step by step guidance

1. Understand the context of the question: The problem is asking about the two general approaches for preparing an income statement. This relates to how financial information is organized and presented in accounting.
2. Recall the two main formats for income statements: The single-step approach and the multiple-step approach. These are standard methods used in financial accounting.
3. Define the single-step approach: In this format, all revenues are grouped together, and all expenses are grouped together. The net income is calculated by subtracting total expenses from total revenues. This approach is straightforward and does not separate operating and non-operating activities.
4. Define the multiple-step approach: This format provides more detail by separating operating revenues and expenses from non-operating revenues and expenses. It includes subtotals such as gross profit (calculated as net sales minus cost of goods sold) and operating income (calculated as gross profit minus operating expenses).
5. Recognize that the correct answer is 'single; multiple' because these are the two general approaches for preparing an income statement, as opposed to the other options provided in the question.