Glossary · Profit and analysis
Net income
Net income is what a business has left after subtracting all its expenses from all its income for a period: cost of goods sold, operating costs, interest, depreciation and, for corporations, income tax. It is the bottom line of the profit and loss. A negative figure is a net loss.
Glossary / Net income · Also called Net profit, Bottom line, Net earnings
How it works
The profit and loss builds up to net income in steps. Sales minus cost of goods sold gives gross profit. Gross profit minus operating expenses gives operating income. Other income and expenses, such as interest, give net income before tax, and tax gives net income.
Net income is not the same as cash. A business can show a profit and still run short of cash, because customers have not paid, stock was bought, or a loan principal was repaid. The cash flow statement explains the gap.
For a sole proprietor or partnership, the business pays no income tax itself; the net income is taxed on the owner's personal return. At year-end, net income closes into retained earnings or the owner's equity.
Lenders and investors look at net income over several years, not one. A single year can be lifted or lowered by a one-time sale of equipment, a large repair or a write-off, so read the lines above it before drawing conclusions.
Worked example: From sales to the bottom line
A small corporation's year:
| Amount | |
|---|---|
| Sales | $400,000 |
| Cost of goods sold | −$240,000 |
| Gross profit | $160,000 |
| Operating expenses | −$110,000 |
| Interest | −$5,000 |
| Income before tax | $45,000 |
| Income tax | −$9,000 |
| Net income | $36,000 |
In AcboBooks
In AcboBooks, the profit and loss ends in net income for any date range, on a cash or accrual basis. On the balance sheet, the year's net income shows in equity until year-end close moves it into retained earnings.
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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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