Which of the following must be included as an expense when computing net income?

To determine which expenses must be included when computing net income, it's essential to understand the components involved in calculating net income from a business's revenues.

When calculating net income, one must deduct all operating expenses from total revenues. Operating expenses include costs that are necessary to run the business and generate revenue, such as salaries, rent, utilities, and, importantly, advertising costs. While sales returns affect total revenues, and advertising costs are part of regular operating expenses, income taxes are not considered an operational expense but rather an after-results deduction.

Income taxes are assessed after net income is calculated and are thus not included in the direct computation of net income itself. The correct approach is to compute earnings before interest and taxes first, then consider tax liabilities separately.

Advertising costs, alongside research and development expenses, directly impact the operating performance of a company and are accounted for in calculating net income. However, income taxes must be treated distinctly as they are calculated from the net income obtained after all operational expenses, including advertising and research and development costs, have already been deducted from revenues.

This distinction shows why income taxes are not included in the computation of net income, instead being a separate consideration after all relevant expenses have been accounted for.