net income

Examples of net income in the following topics:

• Net Income

  • Net income in accounting is an entity's income minus expenses for an accounting period.
  • Net income in accounting is an entity's income minus expenses for an accounting period.
  • Net income is a distinct accounting concept from profit.
  • In contrast, net income is a precisely defined term in accounting.
  • As profit and earnings are used synonymously for income (also depending on United Kingdom and U.S. usage), net earnings and net profit are commonly found as synonyms for net income.

• 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.

• Free Cash Flow

  • Free cash flows = Net profit + Interest expense - Net Capital Expenditure (CAPEX) - Net change in Working Capital - Tax shield on Interest Expense
  • There are two differences between net income and free cash flow.
  • The net income measure uses depreciation, while the free cash flow measure uses last period's net capital purchases.
  • The second difference is that the free cash flow measurement deducts increases in net working capital, where the net income approach does not.
  • Some investors prefer using free cash flow instead of net income to measure a company's financial performance because free cash flow is more difficult to manipulate than 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.

• Defining the Income Statement

  • Income statement is a company's financial statement that indicates how the revenue is transformed into the net income.
  • Income statement, also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations, is a company's financial statement that indicates how the revenue (cash or credit sales 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 or "bottom line").
  • The income statement can be prepared in one of two methods.
  • 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.

• 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.

• Recording Sales

  • Also referred to as revenue, they are reported directly on the income statement as sales or net sales.
  • In financial ratios that use income statement sales values, "sales" refers to net sales, not gross sales.
  • The sales portion of an income statement for merchandising companies is figured as noted below:
  • Gross sales do not normally appear on an income statement.
  • The sales figures reported on an income statement are net sales.