Which information is contained in the reported amount of net income?

• A. The amount by which revenues exceed expenses
• B. Total cash on hand
• C. Total assets minus liabilities
• D. Gross profit

Answer: (A)

Net income shows how profitable the period was, and it’s calculated as revenues minus expenses. This bottom-line figure comes from taking all the money earned (revenues) and subtracting all costs and expenses (operating, non-operating, taxes, etc.). That’s why the reported amount of net income represents the overall profit after everything is accounted for, and it appears on the income statement.

The other options describe different things for which you’d look elsewhere: cash on hand is the cash balance, not the profitability figure; assets minus liabilities equals equity, which is the owners’ claim on the business; gross profit is revenues minus the cost of goods sold and doesn’t account for other expenses, taxes, or interest. For example, if revenues are 500 and total expenses are 300, net income would be 200, illustrating the profit after all costs.