Which of the following expense categories is subtracted from total revenues to help arrive at a firm's EBIT?

Question

Quizplus · Accepted Answer

Depreciation is a non-cash expense that is subtracted from total revenues to arrive at a firm's earnings before interest and taxes (EBIT). This is done because depreciation is an expense that reflects the wear and tear on the company's assets over time, but it does not reflect an actual outflow of cash. By subtracting depreciation, we get a more accurate picture of a firm's operating profitability.

A) Incorrect. Cash dividends are paid out of net income or retained earnings, which is calculated after EBIT. 
C) Incorrect. Interest expense is subtracted from EBIT to arrive at earnings before taxes (EBT). 
D) Incorrect. Tax liability is subtracted from EBT to arrive at net income.

Which of the Following Expense Categories Is Subtracted from Total