Which of the following accounts is NOT included in the calculation of net income?

• A. Sales Returns and Allowances
• B. Cost of Goods Sold
• C. Dividends
• D. Operating Expenses

Answer: (C)

Verified step by step guidance

1. Understand the concept of net income: Net income is calculated as revenues minus expenses, including operating expenses, cost of goods sold, and other relevant deductions. It does not include transactions related to equity distributions like dividends.
2. Review the accounts listed in the problem: Sales Returns and Allowances, Cost of Goods Sold, Operating Expenses, and Dividends.
3. Analyze each account's role in the calculation of net income: Sales Returns and Allowances reduce revenue, Cost of Goods Sold is an expense directly related to the production of goods, and Operating Expenses are general business expenses. All of these are included in the calculation of net income.
4. Understand the nature of dividends: Dividends are distributions of earnings to shareholders and are not considered an expense or revenue. They are not part of the income statement but are recorded in the equity section of the balance sheet.
5. Conclude that dividends are NOT included in the calculation of net income because they do not impact the revenues or expenses used to determine net income.