Future Business Leaders of America (FBLA) Advertising Practice test

What is the formula for determining profit?

1. Assets + Owner's Equity

2. Liabilities + Owner's Equity

3. Revenue - Expenses

4. Assets - Liabilities

The correct answer is: Revenue - Expenses

The formula for determining profit is based on the relationship between revenue and expenses. Profit is defined as the amount of money that remains after all costs related to the production and sale of goods or services have been subtracted from the total revenue generated. Specifically, when you take total revenue and subtract total expenses, you arrive at the net profit or net income. This reflects the financial health of a business, indicating how effectively it can generate profit from its operations. The other choices do not relate directly to the concept of profit. One choice pertains to the basic accounting equation, while others involve calculations that describe different aspects of a company's financial position, such as assets and liabilities, but they do not account for the revenue-generating capabilities of the business against its costs.