National Alliance Risk Management Practice Exam 2026 - Free Risk Management Practice Questions and Study Guide

When calculating net income, operating expenses are indeed deducted. Operating expenses represent the costs associated with running a business's core operations, such as rent, utilities, salaries, and other overhead costs. By subtracting these expenses from total revenue, businesses arrive at their gross profit, which is then adjusted for any other expenses, taxes, and interest to determine net income.

Operating expenses are crucial because they reflect the ongoing costs necessary to keep the business functioning. This deduction is essential for presenting a clear picture of the profitability of the business during a specific time period. In contrast, liabilities, current assets, and investments do not directly factor into the calculation of net income; instead, they are components of the balance sheet that relate to a business's financial position at a given moment.