Net income

Definition

Net income is the profit a company retains after deducting all expenses, including taxes and interest, from its total revenue. It is often referred to as the bottom line and indicates the company's profitability during a specific period.

5 Must Know Facts For Your Next Test

1. Net income is calculated using the formula: Net Income = Total Revenue - Total Expenses.
2. It appears at the bottom of the income statement, making it a key indicator of financial performance.
3. Net income can be affected by both operational activities (like sales and production costs) and non-operational activities (like taxes and interest).
4. In accrual accounting, net income includes revenues earned and expenses incurred during the period, regardless of when cash transactions occur.
5. A positive net income indicates profitability, while a negative net income signifies a loss.

Review Questions

• How do you calculate net income from an income statement?
• Where on the financial statements can you find net income?
• What are two types of activities that can affect net income?

Related terms

Gross Income: The total revenue generated by a company before any expenses are deducted.

Operating Income: The profit earned from regular business operations, excluding taxes and interest.

Accrual Accounting: An accounting method where revenues and expenses are recorded when they are earned or incurred, not necessarily when cash is exchanged.