Revenues and expenses are subcategories of which of the following financial statement elements?

• A. Liabilities
• B. Equity
• C. Net Income
• D. Assets

Answer: (C)

Verified step by step guidance

1. Understand the structure of financial statements: Financial statements are composed of several key elements, including assets, liabilities, equity, revenues, and expenses.
2. Recognize that revenues and expenses are components of the Income Statement, which is used to calculate Net Income. Net Income is the result of subtracting expenses from revenues.
3. Identify the relationship between Net Income and Equity: Net Income contributes to the Retained Earnings portion of Equity. Retained Earnings are increased by Net Income and decreased by dividends paid to shareholders.
4. Clarify why revenues and expenses are not directly subcategories of assets, liabilities, or equity: Assets represent resources owned by the company, liabilities represent obligations, and equity represents the residual interest in the assets after deducting liabilities. Revenues and expenses are operational results that impact Net Income, which in turn affects equity.
5. Conclude that revenues and expenses are subcategories of Net Income, as they are the primary components used to calculate this financial statement element.