How is net income calculated?

Net income is calculated by subtracting total expenses from total revenues. This calculation provides a clear picture of a company's profitability over a specific period. When total revenues exceed total expenses, the result is a positive net income, indicating that the company efficiently generates profit. Conversely, if total expenses are greater than total revenues, the result is a negative net income, which signals a loss for the period.

The other options do not accurately depict how net income is derived. Total revenue added to total expenses does not yield meaningful financial data since it does not distinguish between income earned and costs incurred. Comparing total assets with total liabilities relates to a company's financial position rather than profitability. Averaging cash inflows over time does not address profitability directly; net income is specifically concerned with revenues and expenses rather than merely cash flow or asset valuations. Hence, the correct option clearly aligns with the fundamental accounting principle of calculating net income.