Which statement best describes operating income?

• A. Income from incidental activities
• B. Income that is always taxable
• C. Income from core business activities
• D. Income reported as equity

Answer: (C)

Operating income is the profit earned from the company’s main business activities. It reflects revenue from core operations minus the operating expenses necessary to run those operations, such as salaries, rent, and depreciation. This focuses on how well the primary business is performing before financing costs and taxes.

It’s not about incidental or non-core activities, which falls under non-operating income; it isn’t about taxes or equity accounting, which relate to different parts of financial reporting.

For example, a retailer might have sales revenue, cost of goods sold, and operating expenses like store payroll and utilities. Subtracting the operating expenses from the revenue gives operating income, while interest, taxes, and gains or losses from investments would be recorded separately.