net income

(noun)

Gross profit minus operating expenses and taxes.

Related Terms

(noun)

Net income also referred to as the bottom line, net profit, or net earnings is an entity's income minus expenses for an accounting period.

Related Terms

Examples of net income in the following topics:

  • Preparation of the Statement of Cash Flows: Indirect Method

    • This leaves us with the amount of $9,000 for net income.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement) for:
    • items that were included in net income but did not affect cash.
    • An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income.
    • This leaves us with the amount of $9,000 for net income.

  • Reporting for a Combined Entity

    • Net Income for 201X for ABC is USD 20,000 and for XYZ net income is USD 8,000.
    • ABC's net income for the year includes 80% of XYZ's net income, or USD 6,400.
    • This amount must be subtracted from the net income figure to arrive at 13,600 (20,000 - 6,400).
    • The consolidated net income for both companies after this adjustment is USD 21,600 (20,000 - 6,400 + XYZ's total net income of 8,000).
    • Second, the portion of net income attributed to the non-controlling ownership interest must be deducted, or USD 1,600 (8,000 * .20).

  • Return on Assets

    • The Return on Total Assets ratio measures how effectively a company uses its assets to generate its net income.
    • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.
    • Sales is a measure of how much money the company can generate while net income is a measure of how much the business earns after its pays all of its financial obligations.
    • Return on total assets equals the total net income the business earns in a given accounting period divided by the average value of the business's total assets for the same period.
    • Return on Total Fixed Assets equals the business's net income divided by the average value of the business's total fixed assets for the accounting period.

  • Operating Expenses, Non-Operating Expenses, and Net Income

    • Operating expenses and non operating expenses are deducted from revenue to yield net income.
    • Non operating expenses include loan payments, depreciation, and income taxes.
    • When net income is positive, it is called profit.
    • Net income increases when assets increase relative to liabilities.
    • Operating expenses, non operating expenses and net income are three key areas of the income statement.

  • Preparation of the Statement of Cash Flows: Direct Method

    • In short, they are elements of net income.
    • For items that normally appear on the income statement, cash flows from operating activities display the net amount of cash that was received or disbursed during a given period of time.
    • In the indirect (addback) method for calculating cash flows, the accrual basis net income is established first.
    • This net income is then indirectly adjusted for items that affected the reported net income but did not involve cash.
    • The indirect method adjusts net income (rather than adjusting individual items in the income statement) for the following phenomena: changes in current assets (other than cash), changes in current liabilities, and items that were included in net income but did not affect cash.

  • Introduction to the Retained Earning Statement

    • Generally, retained earnings are the accumulated net income of the corporation (proprietorship or partnership) minus dividends distributed to stockholders.
    • Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including items like an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses.
    • These items are not part of net income, yet are important enough to be included in comprehensive income, giving the user a bigger, more comprehensive picture of the organization as a whole.Items included in comprehensive income, but not net income are reported under the accumulated other comprehensive income section of shareholder's equity.
    • Retained earnings are part of the balance sheet under Stockholders Equity (Shareholders Equity) and are mostly affected by net income earned by the company during a specified period, less any dividends paid to the company's owners/stockholders.
    • Ending Retained Earnings = Beginning Retained Earnings − Dividends Paid + Net Income.

  • Relationships Between Statements

    • If revenue exceeds expenses for the period then a net income occurs.
    • The income statement, specifically, net income reconciles the beginning (prior ending period) balance sheet to the current balance sheet.
    • These changes usually consist of the addition of net income (or deduction of net loss) and the deduction of dividends.
    • Operating activities generally include the cash effects of transactions and other events that enter into the determination of net income.
    • That is, the net change in the balance sheet accounts will not equal net income.

  • Income Statement Formats

    • A company's financial statement indicates how the revenue, money received from the sale of products and services before expenses are taken out, is transformed into the net income, the result after all revenues and expenses have been accounted for, also known as Net Profit.
    • In the multiple-step format revenues are often presented in great detail, cost of goods sold is subtracted to show gross profit, operating expenses are separated from other expenses, and operating income is separated from other income.
    • When net income is positive, it is a called profit.
    • Net income increases when assets increase relative to liabilities.
    • Thus, the balance sheet has a direct relation with the income statement.

  • Introduction to the Income Statement

    • The income statement explains how the revenue, which is money received from the sale of products and services before expenses are taken out, is transformed into the net income.
    • Net income is what is left after all the revenues and expenses have been accounted for, it is also known as "Net Profit. "
    • There are two types of income statement, a single-step income statement and a multi-step income statement.
    • When combined with income from operations, this yields income before taxes.
    • The final step is to deduct taxes, which finally produces the net income for the period measured.

  • Cost of Buildings

    • Unlike land, buildings are subject to depreciation or the periodic reduction of value in the asset that is expensed on the income statement and reduces income.
    • They also can incur substantial maintenance costs, which are expensed on the income statement and reduce an accounting period's income.
    • The building's net carrying value or net book value, on the balance sheet is $110,000.
    • If the sale results in a gain, the excess received over the building's net book value is disclosed on the income statement as an increase to the accounting period's income.
    • If the sale results in a loss and the business receives less than book value, the loss is also disclosed on the income statement as a decrease to income.