On a traditional single-step income statement, how is net income calculated?

• A. By subtracting total expenses from total revenues
• B. By subtracting cost of goods sold from sales revenue
• C. By subtracting operating expenses from gross profit
• D. By adding operating income to non-operating income

Answer: (A)

Verified step by step guidance

1. Understand the structure of a single-step income statement: It simplifies the calculation of net income by grouping all revenues together and all expenses together, without distinguishing between operating and non-operating items.
2. Identify total revenues: This includes all income generated by the business, such as sales revenue, service revenue, and any other income sources.
3. Identify total expenses: This includes all costs incurred by the business, such as cost of goods sold, operating expenses, and non-operating expenses.
4. Calculate net income: Subtract total expenses from total revenues using the formula: $\mathrm{Net}\mathrm{Income}=\mathrm{Total}\mathrm{Revenues}-\mathrm{Total}\mathrm{Expenses}$
5. Review the options provided in the problem: The correct answer aligns with the single-step income statement approach, which is 'By subtracting total expenses from total revenues.'