Question

Which of the following statements best describes the difference between net income and gross profit?
a.
Gross profit considers operating expenses while net income does not.
b.
Net income considers operating expenses while gross profit does not.
c.
Gross profit deducts taxes while net income does not.
d.
Net income deducts taxes while gross profit does not.

Answer 1

b. Net income considers operating expenses while gross profit does not.

Explanation: Gross profit = Sales − Cost of Goods Sold (it excludes operating expenses, interest, and taxes). Net income = Revenues − all expenses (including operating expenses, interest, and taxes).