Which of the following statements about net income is correct?
A)Net income equals the amount of cash generated by the business during the reporting period.
B)Net income represents the change in the market value of the company's stock during the period.
C)Measurement of net income involves only counting.
D)Measurement of net income involves estimations.

Question

Quizplus · Accepted Answer

One of the most common misconceptions is that some people think net income equals the amount of cash generated by the business during the period.Net income equals revenue (not cash collected)minus expenses (not cash paid).A second,related misconception is that a company's net income represents the change in the company's value during the period.While a company's net income is one source of value to the company,many other determinants of its value are not included in the income statement.
A third common misconception is that the measurement of income involves only counting.Proper counting is critical to income measurement,but estimation also plays a role.

Which of the Following Statements About Net Income Is Correct