The difference between total revenues and total expenses is known as which of the following?

The difference between total revenues and total expenses is known as which of the following?

• A. Gross margin
• B. Net income
• C. Cash flow
• D. Operating profit

Answer: (B)

The concept tested is bottom-line profitability. Net income is the amount left after subtracting all expenses from all revenues, so it captures the overall profitability of the business, including operating costs, interest, taxes, and any non-operating items. This is why it’s the best answer. Other terms describe parts of profitability but not the entire picture: gross margin equals revenues minus cost of goods sold, focusing only on production costs; cash flow tracks actual cash in and out, which can differ from net income due to timing and non-cash items; operating profit is earnings from core operations before interest and taxes, excluding non-operating items and some expenses.

The concept tested is bottom-line profitability. Net income is the amount left after subtracting all expenses from all revenues, so it captures the overall profitability of the business, including operating costs, interest, taxes, and any non-operating items. This is why it’s the best answer.

Other terms describe parts of profitability but not the entire picture: gross margin equals revenues minus cost of goods sold, focusing only on production costs; cash flow tracks actual cash in and out, which can differ from net income due to timing and non-cash items; operating profit is earnings from core operations before interest and taxes, excluding non-operating items and some expenses.