Net income
| Accountancy |
| Key concepts |
| Accountant · Bookkeeping · Cash and accrual basis · Constant Item Purchasing Power Accounting · Cost of goods sold · Debits and credits · Double-entry system · Fair value accounting · FIFO & LIFO · GAAP / International Financial Reporting Standards · General ledger · Historical cost · Matching principle · Revenue recognition · Trial balance |
| Fields of accounting |
| Cost · Financial · Forensic · Fund · Management · Tax |
| Financial statements |
| Statement of Financial Position · Statement of cash flows · Statement of changes in equity · Statement of comprehensive income · Notes · MD&A |
| Auditing |
| Auditor's report · Financial audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act |
| Accounting qualifications |
| CIMA · ACCA · CA · CGA · CIMA · CMA · CPA · LCCI |
Net income is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings. As profit and earnings are used synonymously for income (also depending on UK and US usage), net earnings and net profit are commonly found as synonyms for net income. Often, the term income is substituted for net income, yet this is not preferred due to the possible ambiguity. Net income is informally called the bottom line because it is typically found on the last line of a company's income statement (a related term is top line, meaning revenue, which forms the first line of the account statement).
The items deducted will typically include tax expense, financing expense (interest expense), and minority interest. Likewise, preferred stock dividends will be subtracted too, though they are not an expense. For a merchandising company, subtracted costs may be the cost of goods sold, sales discounts, and sales returns and allowances. For a product company advertising, manufacturing, and design and development costs are included.
An equation for net income
- Net sales revenue
- – Cost of goods sold
- = Gross profit
- – SG&A expenses
- = EBITDA
- – Depreciation & amortization
- = EBIT
- – Interest expense
- = EBT
- – Tax expense
- = Net income
See also
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- Gross income
- Income statement
- Liquidating dividend
- Opportunity cost
- net income per employee
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