The difference between an organization's total revenues and its total expenses is called what?

The difference between an organization's total revenues and its total expenses is called what?

• A. Gross profit
• B. Net income
• C. Net sales
• D. Operating profit

Answer: (B)

Net income is the bottom line of an organization’s income statement. It’s the result of subtracting total expenses from total revenues, so it captures all income and all costs, including operating expenses, taxes, interest, and any non-operating items. This is what people mean when they refer to profitability after everything is accounted for. Understand the distinctions by keeping these in mind: gross profit only subtracts the cost of goods sold from revenues, leaving out other operating and non-operating expenses; net sales is revenues from sales after returns and allowances but still excludes costs; operating profit (EBIT) reflects earnings from core operations before interest and taxes and excludes non-operating items.

Net income is the bottom line of an organization’s income statement. It’s the result of subtracting total expenses from total revenues, so it captures all income and all costs, including operating expenses, taxes, interest, and any non-operating items. This is what people mean when they refer to profitability after everything is accounted for.

Understand the distinctions by keeping these in mind: gross profit only subtracts the cost of goods sold from revenues, leaving out other operating and non-operating expenses; net sales is revenues from sales after returns and allowances but still excludes costs; operating profit (EBIT) reflects earnings from core operations before interest and taxes and excludes non-operating items.