Net income equals what?

• A. Revenue minus expenses
• B. Revenue plus expenses
• C. Assets minus liabilities
• D. Cash inflows minus outflows

Answer: (A)

Net income shows how profitable a business was during a period by accounting for all revenues earned and all expenses incurred. It is the amount left after subtracting expenses from revenues, and it appears on the income statement as the earnings (or profit) for that period. If revenues exceed expenses, you have net income; if expenses exceed revenues, you have a net loss.

Revenue minus expenses is the exact calculation for net income. Revenue minus expenses is not how profitability is measured because adding them would inflate income unnecessarily. Assets minus liabilities equals owners’ equity, not net income. Cash inflows minus outflows equals net cash flow, which tracks cash movement, not profitability.