Q15RQ. - Horngren'S Financial And Managerial Accounting

Question

How is net income calculated? Define revenues and expenses.

Step-by-Step Solution

Answer

Net income is calculated by subtracting total expenses from the total revenues. Revenues are the income generated by the selling of goods or services. Expenses are the costs incurred to sell goods or services. 

Step 1: Explanation on revenues

Revenues are the income received by providing goods or services to the customers, and it includes sales revenue, service revenue, rent revenue, interest revenue and so on

Step 2: Explanation of expenses

These are costs incurred by businesses to run the business. It includes utility expense, rent expense, salaries expense, depreciation expense, etc.