Profit for the business is calculated as which?

Profit for the business is calculated as which?

• A. Total revenue minus total costs
• B. Total costs minus total revenue
• C. Total revenue plus total costs
• D. Assets minus liabilities

Answer: (A)

Profit is what’s left after all costs are paid. So it’s calculated by subtracting total costs from total revenue. Revenue is the income from selling goods or services, while costs cover everything the business spends to earn that income, including fixed and variable expenses. If revenue exceeds costs, you have a profit; if costs exceed revenue, you incur a loss. The other ideas don’t fit: subtracting costs from revenue would give a loss figure negative only if costs exceed revenue, but the standard measure of profit is revenue minus costs. Adding revenue and costs isn’t a standard measure of financial performance. Assets minus liabilities describes owner’s equity, not profit.

Profit is what’s left after all costs are paid. So it’s calculated by subtracting total costs from total revenue. Revenue is the income from selling goods or services, while costs cover everything the business spends to earn that income, including fixed and variable expenses. If revenue exceeds costs, you have a profit; if costs exceed revenue, you incur a loss.

The other ideas don’t fit: subtracting costs from revenue would give a loss figure negative only if costs exceed revenue, but the standard measure of profit is revenue minus costs. Adding revenue and costs isn’t a standard measure of financial performance. Assets minus liabilities describes owner’s equity, not profit.