How do you calculate net income?

• A. Total Revenues minus Total Expenses
• B. Total Assets minus Total Liabilities
• C. Total Sales minus Cost of Goods Sold
• D. Total Income minus Tax Liabilities

Answer: (A)

To calculate net income, you subtract total expenses from total revenues. This formula reflects the overall profitability of a business during a specific period. Net income is a crucial indicator of a company's financial health, as it shows how much money the company retains after all operating expenses, interest, taxes, and other costs have been accounted for.

When total revenues exceed total expenses, the company has a positive net income; conversely, if expenses surpass revenues, the business experiences a net loss. This fundamental calculation is key to assessing performance, making financial decisions, and preparing financial statements.