What is the formula for an Income Statement?

What is the formula for an Income Statement?

• A. Sales - Expenses = Net Income
• B. Revenue - Expenses = Net Income or Loss
• C. Revenue + Expenses = Net Income
• D. Assets - Liabilities = Owner's Equity

Answer: (B)

The formula for an Income Statement reflects the financial performance of a business over a specific period, typically detailing how much money it made and how much it spent. The correct formulation of this is revenue minus expenses, which yields net income or net loss depending on whether the total expenses exceed the revenue earned during that period. When assessing the performance of a business, net income indicates profit, while a net loss results when expenses are higher than revenue. Therefore, using "Revenue - Expenses = Net Income or Loss" clearly communicates this relationship and is a standard format for presenting financial outcomes in an Income Statement. The other options present different concepts: one suggests a simple subtraction of sales and expenses without specifying revenue, while another incorrectly adds expenses to revenue, and the last refers to the balance sheet rather than the income statement, focusing on the relationship between assets, liabilities, and owner's equity. Understanding these distinctions is crucial for correctly interpreting financial statements.

The formula for an Income Statement reflects the financial performance of a business over a specific period, typically detailing how much money it made and how much it spent. The correct formulation of this is revenue minus expenses, which yields net income or net loss depending on whether the total expenses exceed the revenue earned during that period.

When assessing the performance of a business, net income indicates profit, while a net loss results when expenses are higher than revenue. Therefore, using "Revenue - Expenses = Net Income or Loss" clearly communicates this relationship and is a standard format for presenting financial outcomes in an Income Statement.

The other options present different concepts: one suggests a simple subtraction of sales and expenses without specifying revenue, while another incorrectly adds expenses to revenue, and the last refers to the balance sheet rather than the income statement, focusing on the relationship between assets, liabilities, and owner's equity. Understanding these distinctions is crucial for correctly interpreting financial statements.