Which formula is used to calculate net income?

Which formula is used to calculate net income?

• A. Assets = Liabilities + Equity
• B. Net Income = Revenues + Expenses
• C. Net Income = Revenues - Expenses
• D. Net Income = Cash Inflow - Cash Outflow

Answer: (C)

The formula for calculating net income is Revenues minus Expenses. This means that to determine net income, one must evaluate the total earnings generated by the company's activities (revenues) and then subtract all the costs incurred in generating those revenues (expenses). Net income is a key indicator of a company's financial performance, showing how much profit the business has made after accounting for all expenses. This figure is crucial for stakeholders, including investors, as it reflects the company's ability to manage its costs relative to its revenue. The other options do not accurately describe the calculation for net income. The first option illustrates the fundamental accounting equation but does not pertain to net income directly. The second option incorrectly states that net income is derived through addition. Lastly, while the fourth option discusses cash flows, it does not account for non-cash expenses and revenues, which can significantly affect net income.

The formula for calculating net income is Revenues minus Expenses. This means that to determine net income, one must evaluate the total earnings generated by the company's activities (revenues) and then subtract all the costs incurred in generating those revenues (expenses).

Net income is a key indicator of a company's financial performance, showing how much profit the business has made after accounting for all expenses. This figure is crucial for stakeholders, including investors, as it reflects the company's ability to manage its costs relative to its revenue.

The other options do not accurately describe the calculation for net income. The first option illustrates the fundamental accounting equation but does not pertain to net income directly. The second option incorrectly states that net income is derived through addition. Lastly, while the fourth option discusses cash flows, it does not account for non-cash expenses and revenues, which can significantly affect net income.