The amount an individual receives after subtracting taxes and other deductions from gross income is known as net income, often known as net profit, net earnings, or the bottom line. Net income is the amount of money left over after all expenses, taxes, and costs have been deducted.
What is Net Income?
Sales minus cost of products sold, selling, general and administrative expenditures, operating expenses, depreciation, interest, taxes, and other expenses equals net income (NI), also known as net earnings. It is a valuable number for investors to determine how much revenue exceeds an organization’s expenditure.
To calculate a company’s net income, start with its total revenue. Subtract the business’s expenditure and operational costs from this sum to get at the company’s earnings before taxes.
Gross income, or pre-tax earnings, refers to an individual’s total earnings, whereas NI refers to the difference after subtracting deductions and taxes from gross pay.
Taxpayers reduce deductions from gross income to calculate taxable income, which is the figure used by the Internal Revenue Service to calculate income tax. An individual’s NI is the difference between taxable income and income tax.
The last line item on the income statement is net income. Some income statements, on the other hand, will include a section at the bottom that reconciles beginning retained profits with ending retained profits via net income and dividends.
Key Points
- A person’s income after all tax and other costs have been paid
- The total income of a company after all tax and other costs have been paid
- For a firm or an individual, gross revenue or gross income minus expenditure.
- Net income can aid in decision-making, such as determining cash flow and earnings, and it can also be used to give a complete financial picture.