Which two items increase net income?

Rationale

Interest income and gain on sale of assets increase net income.

Both interest income and gains on the sale of assets contribute positively to a company's financial performance, directly enhancing the net income figure reported on the income statement. These items represent revenue streams that elevate profitability, distinguishing them from costs and expenses.

A (Interest income) CORRECT

Interest income is generated from investments or savings accounts and contributes to a company’s revenues. By increasing total revenue, it positively impacts the net income, which is the bottom line of the income statement, reflecting the company’s profitability.

B (Gain on sale of assets) CORRECT

A gain on the sale of assets arises when an asset is sold for more than its book value. This gain is recorded as income, thereby increasing overall net income. It reflects successful asset management and can signal effective strategic decisions regarding the company’s investments.

C (Income tax expense) YOUR ANSWER

Income tax expense is a cost incurred by the company based on its taxable income. This expense reduces net income, as it represents money that must be paid to the government, thereby negatively impacting the overall profitability of the company.

D (Cost of sales) YOUR ANSWER

Cost of sales, or cost of goods sold (COGS), refers to the direct costs attributable to the production of goods sold by a company. As an expense, it reduces gross profit and ultimately net income. A higher cost of sales decreases the amount of income available to shareholders.

Conclusion

In summary, interest income and gains on the sale of assets are the two items that increase net income, contributing positively to a company’s financial health. In contrast, income tax expenses and cost of sales act as deductions from revenue, thereby detracting from net income. Understanding these elements is crucial for assessing a company's profitability and operational efficiency.

Which two items increase net income?

Interest income and gain on sale of assets increase net income.

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