Which formula correctly calculates gross income?

• A. Revenue minus expenses
• B. Net income minus cost of goods sold
• C. Cost of goods sold minus revenue
• D. Revenue minus cost of goods sold

Answer: (D)

Gross income, also called gross profit, is revenue minus cost of goods sold. Revenue is the total money earned from selling goods, while cost of goods sold is the direct cost tied to those goods (materials, direct labor, etc.). By subtracting COGS from revenue, you see how much profit remains from sales before accounting for operating expenses like salaries, rent, and marketing. This is different from net income, which subtracts all operating expenses and other costs. For example, if revenue is 100 and COGS is 60, gross income is 40. Subtracting all expenses would yield net income, not gross income, and reversing the order of revenue and COGS would not reflect the calculation. Therefore, Revenue minus cost of goods sold is the correct formula.