What is net income?
Net income refers to a company or individual's total earnings after accounting for all money associated with that entity, including deductions, taxes, fees, and other charges. It is also referred as "net profit" or the "bottom line." Net income is an important performance metric often used to measure business success in the short-term and long-term.
How to Calculate net income?
Calculating net income can be a straightforward process. Net income is the amount of money remaining after all expenses such as labor and cost of goods are subtracted from gross sales income.
Net income = Total Revenue/Income - Expenses (Allowances, taxes).
Net income vs Gross Income
Gross income is the monetary value before taxes and other deductions. It is essentially a person's total earnings over a specific period and may include salaries, wages, bonuses, commissions, overtime pay, self-employment income, or independent contractor compensation. On the other hand, net income takes into account any deductions applicable to reduce a person's taxable income. It includes such things as taxes, social security contributions, health insurance premiums, and contributions to pensions.