Multiple Choice
If a company reports a net loss, it means that:
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4. Merchandising Operations
Net Sales
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Net income results when:
A
Total assets exceed total liabilities.
B
Net sales are less than cost of goods sold.
C
Total revenues exceed total expenses.
D
Total expenses exceed total revenues.
Verified step by step guidance1
Understand the concept of net income: Net income is the profit a company earns after subtracting all expenses from its total revenues during a specific period.
Analyze the options provided in the problem: Each option describes a different financial scenario. Focus on the relationship between revenues and expenses, as net income is directly tied to these two elements.
Recall the formula for net income: Net Income = Total Revenues - Total Expenses. This formula highlights that net income occurs when total revenues are greater than total expenses.
Evaluate the correct answer based on the formula: The correct scenario for net income is when total revenues exceed total expenses, as this results in a positive value for net income.
Conclude the reasoning: The other options provided (e.g., total assets exceeding total liabilities or net sales being less than cost of goods sold) do not directly define net income. Net income is specifically determined by the relationship between revenues and expenses.
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