Net Income (Accounting)

Beginner

Also known as: Net Profit, Bottom Line

Net income, in accounting, is a company's total profit for a period after all expenses, interest and taxes have been deducted from revenue. It is often called the bottom line.

Net income is the final figure on the income statement, which is why it is called the bottom line. It shows what the business has earned for its owners after paying for everything: the cost of products, operating expenses, interest on debt and income taxes.

For example, a company with revenue of 5,000,000, cost of goods sold of 3,000,000, operating expenses of 1,200,000, interest of 100,000 and tax of 175,000 reports net income of 525,000.

Net income can be kept in the business as retained earnings, paid out to shareholders as dividends, or a mix of both. Dividing net income by the number of shares gives earnings per share, a figure widely used by investors.

Net income is based on accrual accounting, so it is not the same as the cash the business generated. It can also be affected by one-off items, such as gains from selling a division or large write-offs, so analysts often look at underlying or adjusted figures as well.

The term has a separate meaning in personal finance, where net income means take-home pay after tax. That meaning has its own entry under Foundations & Personal Finance.

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