Final answer:
Net income is calculated by subtracting total expenses from total revenues, not by subtracting the Income Statement Debit column total from the Credit column total, which makes the initial statement false.
Step-by-step explanation:
The statement that net income on a work sheet is calculated by subtracting the Income Statement Debit column total from the Income Statement Credit column total is false. Net income is actually determined by subtracting the total expenses (debits) from the total revenues (credits) on the Income Statement section of the work sheet. If the credits exceed the debits, the company has a net income. Conversely, if the debits exceed the credits, the company incurs a net loss.
To calculate after-tax income, you subtract the tax amount from the national income. This is often demonstrated with the simple equation: National income minus taxes. In business accounting, similar principles apply when calculating net income or net loss.
In addition, when calculating the net worth of a company using a T-account, you determine net worth by subtracting total liabilities from total assets. When dealing with balance of payments, subtracting income payments flowing out of the country from the money coming back (exports minus imports) gives you the trade balance, which also reflects concepts of balancing incomes and expenditures.