What role do operating expenses play in the calculation of net income?

Operating expenses are a critical component in determining a company's net income as they are subtracted from total revenue alongside other expenses, such as cost of goods sold and taxes. This subtraction reflects the direct costs associated with the day-to-day operations of the business, including salaries, rent, utilities, and materials.

By deducting these operating expenses from revenue, one arrives at gross income, which then allows for further deductions of other operating and non-operating expenses to arrive at net income. The accurate presentation of operating expenses is essential for understanding the financial performance of a company, as they directly impact profitability.

In contrast, the other options do not accurately represent the role of operating expenses in the calculation of net income. The exclusion of operating expenses from the calculation would provide an inaccurate picture of financial health, while stating they are added to revenue contradicts the concept of net income calculation. Additionally, representing them as cash reserves fails to encapsulate their impact on income. This comprehensive understanding emphasizes the importance of operating expenses in financial modeling and income assessment.