Federal Nursing Home Administrator Practice Exam

What is the formula for calculating net income or loss in an operating statement?

1. Total revenues + total expenses

2. Total revenues - total expenses

3. Total expenses - total revenues

4. Operating income + interest expenses

The correct answer is: Total revenues - total expenses

The formula for calculating net income or loss in an operating statement is derived from the fundamental relationship between a business's revenues and expenses. To determine net income, one must assess how much money the organization earned from its activities compared to how much it spent to operate. When you subtract total expenses from total revenues, you arrive at net income if the result is positive, indicating the organization is generating more revenue than its expenses. Conversely, if the result is negative, this signifies a net loss, meaning expenses have exceeded revenues. This understanding is central to financial management within nursing homes and other care facilities, as it provides insight into the financial health of the organization, allowing for informed decision-making regarding budgeting, planning, and resource allocation. Thus, the correct formula clearly illustrates this essential calculation for assessing overall performance and sustainability.