Question

1. Net income will result during a time period when: Multiple choice

O assets exceed liabilities
O assets exceed revenues
expenses exceed revenues
O revenues exceed expenses

Answer 1

The correct answer for the options is D. (revenues exceed expenses).

Main answer:

Revenue is the amount earned from products/service sales.

Expense is the cost spend to create and market a product/service. This includes administrative costs, production costs, marketing costs, research & development cost, etc.

Therefore, for a product/service to be profitable, the product/service fee should be higher than the expenses used to create income.

Support answer:

To make a handbag, the production cost includes the following:

• Material cost: $40
• Production cost: $20
• Marketing cost: $50
• Distribution cost: $30

Thus, the expense for a single handbag is $140.

The handbag is then sold at $300.
This means the net income for the handbag is: $160