--- title: "What Is Net Income? Definition & Example | MCC Solutions" description: "What is left of revenue after all expenses, including cost of goods sold and taxes where recorded. A worked example and how it differs from gross profit." url: "https://mcc-solutionsnj.com/bookkeeping/glossary/net-income" --- Bookkeeping glossary # What is net income? What is left of revenue after all expenses, including cost of goods sold and taxes where recorded. By [Matthew Coleman](/about), MCC Solutions [![Intuit ProAdvisor Gold tier badge](/img/credentials/intuit-proadvisor-gold.png)](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77)Gold tier in Intuit's ProAdvisor program. [See my Intuit listing](https://proadvisor.intuit.com/app/accountant/search?searchId=matthew-coleman77) Keeping your own books? Tallyfinch does invoices, bank import and reports on your computer. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) ## In plain English It flows into retained earnings at the end of the period. Want a second pair of eyes on your books? [A free bookkeeping health check](/bookkeeping/health-check). It is not the same as cash in the bank. ## Why it matters Net income is the figure most people mean when they ask whether the business made money. It is the number that feeds your tax return, the bottom line a lender looks at, and the amount added to the owners' equity at year end. If expenses are miscoded or missing, this one number absorbs every error. It is also easy to misuse. Owners sometimes spend based on net income without noticing that much of it is tied up in unpaid invoices or stock. ## Worked example Revenue $200,000 less all costs of $176,000 is $24,000 of net income, a 12% net margin. ## How to handle it - Run the profit and loss for the period and note the bottom line. - Check that owner draws, loan principal and transfers between your own accounts are not sitting in expense lines. - Compare net income to the change in cash for the same period and list the reasons they differ. - Track it month by month on a simple chart or spreadsheet so you can see seasonality. ## Common mistakes - Treating net income as spendable cash, which can lead to a shortfall when bills come due. - Comparing a cash basis report one year to an accrual basis report the next, which makes the change meaningless. - Ignoring a large one-time gain or loss, which makes the year look much better or worse than normal operations. ## Not the same as: Gross profit Gross profit only subtracts the direct cost of what you sold. Net income subtracts everything, including rent, payroll, interest and other overhead. [See Gross profit](/bookkeeping/glossary/gross-profit). ## Go deeper - [Closing Entries and Retained Earnings Explained](/bookkeeping/guides/closing-entries-and-retained-earnings): How the year-end close resets income and expense accounts to zero, rolls profit into retained earnings, and what to watch if numbers look wrong. ## Try it [Use the related free tool](/bookkeeping/retained-earnings-calculator). ## Related terms - [Net margin](/bookkeeping/glossary/net-margin): Net income as a percentage of revenue. - [Operating expenses](/bookkeeping/glossary/operating-expenses): The regular costs of running a business that are not part of cost of goods sold. - [Materiality](/bookkeeping/glossary/materiality): The size at which an error or omission would change a reader's decisions. ## Common questions **What is net income?** What is left of revenue after all expenses, including cost of goods sold and taxes where recorded. **Can you give an example of net income?** Revenue $200,000 less all costs of $176,000 is $24,000 of net income, a 12% net margin. **Is net income the same as taxable income?** Not always. Some items are treated differently for tax purposes than in your books. Your accountant reconciles book income to taxable income when preparing the return. **Can a business have negative net income and still be fine?** For a short time, yes, especially during a startup phase or a planned investment. A long run of losses, though, eats into equity and usually needs a plan. General information, not tax, legal or accounting advice. Confirm rules with the IRS, the NJ Division of Taxation or a licensed professional. Need help? [### Monthly bookkeeping Categorizing, reconciling and monthly reports, with cleanup, payroll and NJ filings available. Bookkeeping →](/bookkeeping/) [Full glossary](/bookkeeping/glossary) Do it yourself ### Solopreneur Money Toolkit Estimate the tax, compare the offer, keep the calendar and run the business from one organized set of files. [See what's inside ($99)](/toolkits/solopreneur-money-toolkit)14-day full refund [![Cover of Bookkeeping Fundamentals (ebook) by Matthew Colt](/img/toolkits/bookkeeping-fundamentals-ebook/cover.webp)](/toolkits/bookkeeping-fundamentals-ebook) From the bookshelf ### Bookkeeping Fundamentals A college-level bookkeeping course, without the tuition. By Matthew Colt, $9.99 as an ebook (EPUB and PDF). [See the book](/toolkits/bookkeeping-fundamentals-ebook) [Read the first pages free](/toolkits/bookkeeping-fundamentals-ebook#free-starter) Tallyfinch ### Books you keep on your own computer Tallyfinch does invoices, bills, bank import, reconciliation and the main reports, in a file you own. $99 once, then $5 a month for updates; the app keeps working if you stop the plan. It does not do payroll or sales tax filing. The free download records up to 60 entries. [See Tallyfinch](/bookkeeping/mcc-books-downloadable-bookkeeping-software) [Download it free](/tools/pro/trial/mccBooks) [Compare the three apps](/software) ## Rather have us keep the books? Ask for a quote. [Get a Quote](/bookkeeping/#interest)[Call (908) 444-6373](tel:+19084446373)