What must an item satisfy to appear on the income statement?

• A. It must be a large expense for the company
• B. It must impact the business in the period being reported
• C. It must be related to cash flows
• D. It must be a fixed asset

Answer: (B)

For an item to appear on the income statement, it must impact the business in the reporting period. This principle is rooted in the accrual accounting method, which dictates that revenues and expenses should be recognized in the period they are earned or incurred, not necessarily when cash is exchanged.

By adhering to this principle, the income statement accurately reflects the company’s financial performance for that period, allowing stakeholders to assess its profitability and operational efficiency. This approach ensures that all relevant financial activity is captured, providing a more complete picture of the company's economic activities during the designated timeframe.

The other options involve criteria that do not consistently determine whether an item should be included on the income statement, such as being a large expense, directly related to cash flows, or a fixed asset, which more pertains to the balance sheet.