Which items should be used to compute Freedom Rock's net income?

Which items should be used to compute Freedom Rock's net income?

• A. Sales
• B. Salary expense
• C. Income tax expense
• D. Sales, salary expense, and income tax expense

Answer: (D)

Net income is revenues minus expenses. To compute it, you include all items that either bring in revenue or represent costs that reduce income. Sales provides the revenue, while salary expense and income tax expense are expenses that lower net income. Using Sales, Salary expense, and Income tax expense together gives the full net income figure. Focusing on only one or two of these leaves out either revenue or expenses, leading to an incomplete calculation.

Net income is revenues minus expenses. To compute it, you include all items that either bring in revenue or represent costs that reduce income. Sales provides the revenue, while salary expense and income tax expense are expenses that lower net income. Using Sales, Salary expense, and Income tax expense together gives the full net income figure. Focusing on only one or two of these leaves out either revenue or expenses, leading to an incomplete calculation.