Question

Operating profit will be negative during a time period when:

a) assets exceed liabilities

b) assets exceed revenues

c) expenses exceed revenues

d) revenues exceed expenses

Answer 1

Operating profit wll be negative during a time period when :-

Option C - Expenses exceeds revenues. When the expenses of the company are higher than the revenues earned by the company, it means that there is a Operating loss within the company. During such situations, the operating profit will be negative.

Option A is incorrect. When assets exceed liabilities, the company is said to have a Net asset balance. Operating profit is generally part of the income statement while assets and liabilities are part of the Balance sheet.

Option B is incorrect. This would not result in an Operating profit being negative and hence is incorrect.

Optoin D is incorrect because when revenues exceed expenses, the result will be a Operating Profit that is positive. Hence, this option is not valid.

Please let me know if you have any questions and all the best :)