31. Which of the following is true of gross and net income?
Answer: D
Gross income is determined before expenses are deducted.
Gross income represents the total earnings of an individual or business before any deductions for expenses, taxes, or other costs are applied. This foundational understanding of income statements clarifies the distinction between gross and net income.
A) Gross income is calculated after expenses have been paid.
This statement is incorrect because gross income is not calculated after expenses; rather, it is determined before any expenses are deducted. Therefore, this definition misrepresents the concept of gross income.
B) Net income is income before expenses.
This option is false as net income is actually the amount remaining after all expenses have been deducted from gross income. Hence, this statement inaccurately describes net income.
C) Net income exceeds gross income.
This statement is incorrect because net income cannot exceed gross income, as net income is derived by subtracting expenses from gross income. Therefore, it is logically impossible for net income to be greater than gross income.
D) Gross income is determined before expenses are deducted.
This statement is accurate as it correctly defines gross income as the total income before any deductions for expenses. It highlights the primary distinction between gross and net income effectively.
Conclusion
The correct answer is D, as it accurately reflects the definition of gross income, which is calculated prior to any deductions for expenses. All other options misrepresent either gross or net income, leading to confusion about these fundamental financial concepts. Understanding these definitions is crucial for anyone studying personal finance or accounting.