What is net income?

In business, net income is the positive result of 1) revenues and gains minus 2) expenses and losses. A negative result is referred to as net loss. (Please note that some gains and losses are not included in the calculation of net income, but will be included in comprehensive income).

Net income is also known as net earnings. The details of the net income calculation is reported in the business's income statement. The income statement is also known as the statement of income, statement of earnings, and statement of operations.

The net income of a regular U.S. corporation includes the income tax expense which pertains to the items reported in its income statement. The net income of a sole proprietorship, partnership, and Subchapter S corporation will not include income tax expense since the owners (and not the entity) are responsible for the business income tax.

A corporation's net income will cause an increase in the Retained Earnings account, which will also result in an increase in stockholders' equity. A net loss will cause a decrease.

A sole proprietorship's net income will cause an increase in the owner's capital account, which will also mean an increase in owner's equity. A net loss will cause a decrease.

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