Question

What is the relationship between revenue and net income on the income statement?

A as contribution margin increases both revenue and net income will always increase

B. as revenue increases, net income will always increase

C none of these

D as net income increases, revenue will always increase

E as period costs decrease both revenue and net income will always increase

Answer 1

REVENUE MEANS TOTAL INCOME EARNED BY ENTITY FROM ITS MAIN OPERATIONS AND NET INCOME MEANS INCOME EARNED BY ENTITY BY DEDUCTING EXPENSES INCURRED BY COMPANY FROM REVENUE.

IF NET INCOME INCREASES REVENUE WILL ALWAYS INCREASES, WE CAN UNDERSTAND THIS BY AN EXAMPLE -

REVENUE = 50

EXPENSES = 10

NET INCOME = 40

NOW IF WE INCREASE NET INCOME AND REVENUE WILL ALSO INCREASE

REVENUE = 60

EXPENSES = 10

NET INCOME = 50

NOW IF WE INCREASE NET INCOME AND EXPENSES, REVENUE WILL ALSO INCREASE

REVENUE = 110

EXPENSES = 40

NET INCOME = 70

HENCE, D IS CORRECT OPTION

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