Which statement correctly describes revenue and expenses on the income statement?

• A. Revenue increases net income.
• B. Revenue decreases net income.
• C. Expenses increase net income.
• D. They are the same as assets and liabilities.

Answer: (A)

On the income statement, net income is what you get when you subtract expenses from revenues: net income = revenues − expenses. Revenue contributes positively to profitability, so when revenue increases (while expenses stay the same), net income rises. That makes the statement that revenue increases net income the best description.

Expenses, in contrast, reduce profitability because they are costs incurred to generate revenue, so higher expenses lower net income. The claim that expenses increase net income is incorrect. Revenue and expenses are not the same as assets and liabilities; they are income statement items, not balance sheet items.