Question 2

Gross profit less expenses equals income from operations.

Gross profit less expenses results in income from operations, which reflects the profitability of a company's core business activities before considering other non-operational factors.

A) income from operations.

This option is correct as it directly describes the result of subtracting expenses from gross profit. Income from operations specifically measures the profitability derived from normal operational activities, excluding other income or expenses.

B) net income.

Net income includes all revenues and expenses, not just those from operations. It accounts for non-operating income and expenses, taxes, and other financial activities, making it broader than the concept of income from operations.

C) net profit.

Net profit is often used interchangeably with net income; however, it generally encompasses all aspects of profitability, including operating and non-operating income. Thus, it does not accurately reflect the result of gross profit less expenses.

D) income before taxes.

Income before taxes refers to the profit earned before accounting for tax expenses, which may include various income sources. It is not limited to the operational efficiency reflected in income from operations.

Conclusion

Income from operations is the definitive result of gross profit minus expenses, focusing solely on the company's operational efficiency. The other options fail to capture this specific aspect, as they include broader financial factors that are not considered in the calculation of income from operations.