What Is Net Income? - Definition & Formula

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Standard of Living: Definition & Measurement

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:00 Net Income Defined
  • 0:30 Calculating Net Income
  • 0:45 Examples
  • 3:25 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Income does not always mean profit. In this lesson, you'll learn what net income is and how to calculate it. You'll also have a chance to take a brief quiz after the lesson to reinforce your knowledge.

Net Income Defined

Net income is the amount of revenue you have left over after you have subtracted all costs of doing business. The opposite of net income is net loss, which is when your costs and expenses actually exceed your income. Net income (or loss) is reported on a company's income statement. If any portion of net income is not distributed to the owners of the company, it is reflected as retained earnings on a company's balance sheet.

Calculating Net Income

The formula to calculate net income is rather easy: Net Income = Total Revenue - Total Expenses

If the equation results in a negative number, which is indicated in accounting by a number bounded by parentheses, then there is no net income, but rather a net loss.

Examples

Let's say that you are an accountant for a small business and its owner has asked you to calculate the net income for the year. You collect the following data from your ledgers:

Total revenue: $500,000
Costs of goods sold: $75,000
Salaries and wages: $150,000
Rent: $120,000
Utilities: $5,000
Interest payments: $10,000
Taxes: $12,000

Net Income = Total Revenue - Total Expenses

  • Net Income = $500,000 - ($75,000 + 150,000 + $120,000 + $5,000 + $10,000 + $12,000)
    • Net Income = $500,000 - $372,000
      • Net Income = $128,000

Let's look at one more example. You are the president of a corporation and are in the process of preparing for the annual shareholders meeting. You need to calculate the net income for the past fiscal year. Are your shareholders going to be happy given the following numbers?

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support