Net income

1. A company's total earnings (or profit). Net income is calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. This number is found on a company's income statement and is an important measure of how profitable the company is over a period of time. The measure is also used to calculate earnings per share.

Often referred to as "the bottom line" since net income is listed at the bottom of the income statement. In the U.K., net income is known as "profit attributable to shareholders".

2. An individual’s income after deductions, credits and taxes are factored into gross income. Deductions and credits are subtracted from gross income to arrive at taxable income, which is used to calculate income tax. Net income is income tax subtracted from taxable income.

Investopedia Says:
1. Net income is calculated by starting with a company's total revenue. From this, the cost of sales, along with any other expenses that the company incurred during the period, is removed to reach earnings before tax. Tax is deducted from this amount to reach the net income number. Net income, like other accounting measures, is susceptible to manipulation through such things as aggressive revenue recognition or by hiding expenses. When basing an investment decision on net income numbers, it is important to review the quality of the numbers that were used to arrive at this value.

2. For example, suppose that your gross income is $50,000 and you have $20,000 in deductions and credits. This leaves you with a taxable income of $30,000. Then, suppose that another $5,000 of income tax is subtracted; the remaining $25,000 will be your net income.

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In general: sum remaining after all expenses have been met or deducted; synonymous with net earnings and with net profit or net loss (depending on whether the figure is positive or negative).

For a business: difference between total sales and total costs and expenses. Total costs comprise cost of goods sold including depreciation; total expenses comprise selling, general, and administrative expenses, plus Income Deductions. Net income is usually specified as to whether it is before income taxes or after income taxes. Net income after taxes is the bottom line referred to in popular vernacular. It is out of this figure that dividends are normally paid. See also Operating Profit (or Loss).

For an individual: gross income less expenses incurred to produce gross income. Those expenses are mostly deductible for tax purposes.

1. In accounting, the amount remaining after all expenses have been met.
Example: Table 34.

2. In Appraisal same as Net Operating Income.

Table 34 Net Income Statement

Rental income $10,000

Less:

Utilities $ 1,500

Property taxes 1,000

Management fee 500

Maintenance expenses 2,000

Interest 2,000

Depreciation 1,000

Income taxes 1,000

_______

Subtotal - 9,000

_______

Net income $1,000

Net income is an accounting term that can be defined as the difference between a company's total revenues (money earned from sales or investments) and total expenses (money paid to produce goods or services, plus salaries, rent, depreciation, etc.) for a given period of time. Also known as net earnings, after-tax income, or profit, net income is the "bottom line" of the formal accounting report known as the income statement. If a company's total expenses exceed its total revenues for a certain period, it can be said to have experienced a net loss. If revenues and expenses should turn out to be equal, the company will have broken even.

Net income is one of the most important indicators of the financial health of a business. "Some people view the income statement as the most important of the three required financial statements [the others are the balance sheet and the statement of changes in financial position] because it is designed to report the amount of net income and the details of how that amount was earned, " according to Glenn A. Welsch, Robert N. Anthony, and Daniel G. Short in their book Fundamentals of Financial Accounting. "The amount of net income for the period represents a net increase in resources (or a net decrease if a loss) that flowed into the business entity during that period as a result of operational activities."

Most income statements will show three separate income figures. The first is pretax income, which is the amount the company earned before taking taxes into account. Reporting of this figure is optional. The second is income before extraordinary items, which is equal to ordinary revenues less ordinary expenses. Extraordinary items include any nonoperating gains or losses that are unusual in nature and infrequent in occurrence. They are separated from ordinary income in order to avoid confusing the readers of income statements. Reporting of this figure is mandatory whenever there are extraordinary items to be included.

The third and final income figure shown on an income statement is net income. It is the difference between total revenues and total expenses for the period, including taxes and extraordinary items. Net income always appears as the last figure in the body of the income statement, and its reporting is mandatory. Corporations (but not sole proprietorships or partner-ships) are also required to divide the net income figure by the number of shares of stock outstanding in order to report the earnings per share (EPS) for the period.

In addition to providing information on its own, net income is also frequently compared to other figures in financial ratios in order to provide further information about a company's overall health. For example, financial analysts often divide net income by total sales in order to find a company's rate of return on sales. This figure provides a good indication of the amount of profit the company is able to earn for every dollar of sales. Another common ratio examined by financial analysts is return on stockholders' equity, which can be found by dividing net income by the average equity for the period. As Charles T. Horngren and Gary L. Sundem wrote in their book Fundamentals of Financial Accounting, "This ratio is widely regarded as the ultimate measure of overall accomplishment."

Further Reading:

Anthony, Robert N., and Leslie K. Pearlman. Essentials of Accounting. Prentice Hall, 1999.

Bragg, Steven M. Accounting Best Practices. Wiley, 1999.

Hilton, Ronald W. Managerial Accounting. McGraw-Hill, 1991.

Horngren, Charles T., and Gary L. Sundem. Introduction to Financial Accounting. 4th ed. Prentice Hall, 1990.

Welsch, Glenn A., Robert N. Anthony, and Daniel G. Short. Fundamentals of Financial Accounting. 4th ed. Irwin, 1984.

The gross [total] income less deductions and exemptions allowed by law, 221 S.W. 2d 51, 54; "gross income less the legitimate expenses of realizing same." 240 F. 2d 324, 325. See income [net income].

"Bottom line" redirects here. For other uses, see Bottom line (disambiguation).

It has been suggested that this article or section be merged with profit (accounting). (Discuss)

Net income is equal to the income that a firm has after subtracting costs and expenses from the total revenue. Net income can be distributed among holders of common stock as a dividend or held by the firm as retained earnings. Net income is an accounting term. In some countries (such as the UK) profit is the usual term.^{[citation needed]} Often, the term income is substituted for net income, yet this is not preferred due to the possible ambiguity.

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.

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.

An equation for net income in merchandising:

Net income or net loss =
Revenue – Cost of goods sold – Sales discounts – Sales returns and allowances – Expenses – Minority interest – Preferred stock dividends

See also

Dividend Operating income EBITDA Economic value added

Gross income Income statement Liquidating dividend Opportunity cost net income per employee

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