A net loss occurs when which of the following conditions hold?

A net loss occurs when which of the following conditions hold?

• A. Income exceeds expenses.
• B. Expenses exceed income.
• C. Revenues equal expenses.
• D. Assets exceed liabilities.

Answer: (B)

Net loss shows up on the income statement when what you spend is more than what you earn. Profit equals revenues minus expenses, so when revenues exceed expenses you have a profit, and when they’re equal you break even. If expenses exceed income, that difference is negative, which is a net loss. The other option describes a balance-sheet relationship (assets vs liabilities) and does not indicate profitability. For a net loss, the key condition is that expenses exceed income. For example, if income is 100 and expenses are 120, net income is -20, a loss.

Net loss shows up on the income statement when what you spend is more than what you earn. Profit equals revenues minus expenses, so when revenues exceed expenses you have a profit, and when they’re equal you break even. If expenses exceed income, that difference is negative, which is a net loss. The other option describes a balance-sheet relationship (assets vs liabilities) and does not indicate profitability. For a net loss, the key condition is that expenses exceed income. For example, if income is 100 and expenses are 120, net income is -20, a loss.