What is Net Income?

In a business, Net Income is the difference between Revenue and Expenses. When the difference is positive (revenues are greater than expenses), the business has a profit or Net Income. When the difference is negative (expenses are greater than revenues), the business has a loss or Net Loss.

What is the Difference Between Gross Profit and Net Income?

Gross Profit is the difference between what a product or service is sold for (selling price or Revenue) and what it costs the company to make or purchase products for sale to customers (Cost of Good Sold.) Net Income is the difference between Gross Profit and the Operating Expenses of a business.

For example, the following company has Revenues of $64,100 and Cost of Goods Sold of $1,300. The difference between the two is Gross Profit. [$64,100 – $1,300 = $62,800] Gross Profit measures the profitability of the product or service being sold to customers. It ignores all the other expenses involved in running a business.

Those other expenses are listed below Gross Profit and represent all the general operating costs of running a business. When total of all the operating expenses are subtracted from Gross Profit, this gives the Net Income or Profit for the business during that period of time.

Gross Profit = Revenue – Cost of Goods Sold

Net Income = Gross Profit – Expenses

What Does Net Income Mean?

When a company has Net Income, it means the company is operating at a profit (revenue is greater than expenses.) When a company has a Net Loss, it means the company is operating at a loss (expenses are greater than revenue.)

Caroline Grimm

Caroline Grimm is an accounting educator and a small business enthusiast. She holds Masters and Bachelor degrees in Business Administration. She is the author of 13 books and the creator of Accounting How To YouTube channel and blog. For more information visit: https://accountinghowto.com/about/

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