How is net income calculated?

Net income is calculated by subtracting total expenses from total revenues. This reflects the profitability of a business over a specific period, indicating how much money remains after all costs associated with generating revenues have been deducted.

When total revenues exceed total expenses, the result is a net income, signaling effective financial management and operational efficiency. Conversely, if expenses surpass revenues, the outcome would be a net loss. Understanding this calculation is pivotal for assessing a company's financial health, making it a fundamental concept in accounting. The other calculations would not yield net income and instead misrepresent the financial performance of a business.