Multiple Choice
Gross profit equals the difference between:
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4. Merchandising Operations
Net Sales
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If the expenses of a business are higher than the revenue, that business would be:
A
Operating at a net loss
B
Increasing net sales
C
Operating at a net profit
D
Breaking even
Verified step by step guidance1
Understand the concept of net loss: A business operates at a net loss when its total expenses exceed its total revenue during a specific period.
Review the relationship between revenue and expenses: Revenue represents the income generated from business activities, while expenses are the costs incurred to operate the business.
Analyze the given scenario: The problem states that expenses are higher than revenue, which means the business is spending more than it is earning.
Eliminate incorrect options: 'Increasing net sales' and 'Operating at a net profit' are not possible because expenses exceed revenue. 'Breaking even' occurs when revenue equals expenses, which is also not the case here.
Conclude that the correct answer is 'Operating at a net loss,' as this term accurately describes the situation where expenses are greater than revenue.
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