Question

Which one of the following statements about net income is false?

1) Net income is also known as profit after tax.
2) Net income is calculated by subtracting expenses from revenue.
3) Net income is always positive.
4) Net income is reported on the income statement.

Answer 1

The false statement is that net income is always positive. While net income is derived by subtracting expenses from revenues and is reported on the income statement, it can be negative if expenses exceed revenues.

Step-by-step explanation:

The statement about net income that is false is 'Net income is always positive.' Net income, also known as profit after tax, is the amount of money that remains after all operating expenses, interest, taxes, and preferred stock dividends have been deducted from a company's total revenue. However, it's possible for net income to be negative, which occurs when a company's expenses exceed its revenues, resulting in a net loss.

It is true that net income is calculated by subtracting expenses from revenue and that this figure is reported on the income statement. However, net income is not guaranteed to be always positive; companies can indeed incur losses.