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CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting

Under the Framework, which of the following is correctly described as the residual amount that remains after expenses, including capital maintenance adjustments where appropriate, have been deducted from income?

Profit is the residual amount that remains after expenses, including capital maintenance adjustments where appropriate, are deducted from income. If expenses exceed income, the residual is a net loss. Equity is a different residual, relating to assets less liabilities rather than income less expenses.

  1. AEquity
  2. BProfitCorrect
  3. CCapital reserve
  4. DDrawings

Explanation

The Framework states that profit is the residual amount remaining after expenses (including capital maintenance adjustments, where appropriate) are deducted from income. If expenses exceed income, the residual amount is a net loss. Equity is the residual interest in assets after deducting liabilities, a different idea.

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