Final answer:
The statement is true; subtracting total expenses from total revenue indicates net income or net loss, with a positive result being net income and a negative one a net loss. Accounting profit is determined by subtracting only explicit costs from revenues, while economic profit also deducts implicit costs.
"The correct statement is True"
Step-by-step explanation:
The statement is true: subtracting total expenses from total revenue determines your net income or net loss.
If the result is a positive number, it indicates net income, and if it is negative, it signifies a net loss. In accounting, the calculation of net income involves assessing revenues and expenses. Specifically, the accounting profit is understood as total revenues minus the explicit costs, which are the direct, out-of-pocket costs of doing business.
To further refine understanding of profit, the concept of economic profit includes both explicit and implicit costs. Implicit costs are opportunity costs of using resources that the business already owns, forgoing the opportunity to earn a return on these resources elsewhere. Economic profit is therefore calculated by subtracting both explicit and implicit costs from total revenues.
An example of these concepts in action would be a company earning $200,000 in revenue, with explicit costs of $85,000 and implicit costs of $125,000. The calculation of accounting profit would be $200,000 (revenues) - $85,000 (explicit costs) = $115,000. However, for economic profit, the calculation would include the implicit costs as well: $200,000 (total revenues) - $85,000 (explicit costs) - $125,000 (implicit costs) = -$10,000, indicating an economic loss.