Which of the following statements is true about net income?

• A. It occurs when total expenses exceed total revenue.
• B. It is also known as a net profit.
• C. It is calculated only using cash transactions.
• D. It represents losses incurred by the company.

Answer: (B)

Net income, often referred to as net profit, is the amount of money that remains after all expenses, taxes, and costs have been subtracted from total revenue. This figure is a key indicator of a company's financial performance and profitability, and it reflects the company's ability to generate profit from its operations.

This understanding is crucial for assessing a business's overall health; a positive net income indicates that the company is successfully generating more revenue than it is spending, which is vital for growth and sustainability.

The other statements misrepresent the concept of net income. For instance, when total expenses exceed total revenue, the result is a net loss instead of net income. Additionally, net income is calculated on an accrual basis, which includes not just cash transactions but also accounts for credit transactions and other revenue and expense items that may not involve immediate cash flow. Lastly, stating that it represents losses misconstrues the positive nature of net income, which signifies profitability rather than a loss.