The difference between revenue and expenses is called which term?

• A. Net income
• B. Operating cash flow
• C. Gross margin
• D. Return on assets

Answer: (A)

The key idea is profitability—the bottom line. Net income is what you get when you subtract all expenses from revenue. Revenue is the total money earned from selling goods or services, while expenses are the costs incurred to generate that revenue. Net income represents the actual profit after covering those costs. If revenue is greater than expenses, you have a positive net income; if expenses exceed revenue, you have a net loss.

This differs from other terms: operating cash flow focuses on the cash actually generated by operations, not all expenses versus revenue. Gross margin looks at revenue minus the cost of goods sold, which is only a part of expenses and doesn’t account for other operating costs. Return on assets measures profitability relative to the assets used, not the raw difference between revenue and expenses.