Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

What indicates a company has made a profit on its income statement?

1. Net expenses

2. Gross profit

3. Net income

4. Operating income

The correct answer is: Net income

The accurate indication of a company's profit on its income statement is represented by net income. Net income reflects the total revenue that a company has earned after all expenses, taxes, and costs have been deducted. It provides a comprehensive overview of a company's profitability over a specific period and is often referred to as the "bottom line" because it appears at the bottom of the income statement. In contrast, gross profit refers to the income a company makes from its sales after deducting the cost of goods sold, but does not account for other operating expenses, taxes, or interest. Operating income, while a measure of profitability that considers operating expenses, also does not take into consideration non-operating income or other expenses. Net expenses, as a term, typically describe the total costs of doing business without specifying profit, thereby not providing a clear picture of profitability like net income does. Thus, net income serves as the definitive measure of a company's profitability, encapsulating all aspects of revenue and expenses.