The net income of a company refers to its total earnings, or profit. The net income is also called the bottom line. This is due to the fact that the figure showing a company’s net income is found at the bottom of the income statement.
How is the net income of a company calculated?
First, the total revenue is taken into consideration, that is, how much money the company makes within a specified period of time. Subtract the total expenses of the company from this amount. Total expenses may include, but are not limited to, operating costs, loans and debts, taxes, depreciation, and other expenses. The net income is a very important figure in any company’s income statement, and actually shows just how profitable a company is within a given period of time.
How is the net income of an individual calculated?
For an individual, the net income holds a similar meaning. An individual’s net income is the result of his total expenses being subtracted from his gross earnings over a period of time. Gross earnings include all money coming in, including other assets. From this amount, the credits and deductions are subtracted. The resulting figure is the taxable income. That is NOT the net income just yet. After the taxes are subtracted from the taxable income, that’s when the individual’s net income is determined.
The net income of a company or individual may be either positive or negative. A positive net income is dubbed net profit. On the other hand, a negative net income is called net loss.