Future Business Leaders of America (FBLA) Agribusiness Practice Test

Which of the following best describes net income?

1. Total revenue without deductions

2. The profit remaining after all expenses are deducted

3. Total sales before taxes

4. The average income across all assets

The correct answer is: The profit remaining after all expenses are deducted

Net income is defined as the profit that remains after all expenses, including operating costs, interest, taxes, and depreciation, have been subtracted from total revenue. This measure is crucial for assessing the financial performance of a business, as it reflects the actual earnings available to shareholders and can influence investment decisions. By calculating net income, businesses can gain insights into their profitability and efficiency in managing expenses in relation to their revenues. Total revenue without deductions primarily refers to gross revenue, which does not account for any costs and expenses. This measure could be misleading, as it does not reflect the actual earnings of the business after costs are considered. Likewise, total sales before taxes also does not take into consideration the costs incurred to generate those sales, providing an incomplete picture of financial health. Finally, the average income across all assets is more related to return on assets and does not adequately define the profitability of a company. Thus, option B accurately captures the essential concept of net income.