Question

Which of the following items reduces net income?

1) Depreciation expense
2) Interest income
3) Sales revenue
4) Operating expenses

Answer 1

Depreciation expense and operating expenses reduce net income. Interest income and sales revenue increase it. Net income equals revenues minus expenses, taxes, and costs.

Step-by-step explanation:

The question is regarding which items impact net income. Net income is calculated as revenues minus expenses, taxes, and costs. When a company incurs an expense, this reduces its net income. Among the options provided, both the depreciation expense and operating expenses lead to a reduction in net income because they represent costs that the company must subtract from its total revenues. On the other hand, interest income and sales revenue contribute to an increase in net income since they are forms of income for the company.