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What is the difference between income and profit?

Author:
Harold Averkamp, CPA, MBA

Definition of Income

The term income is used differently by many people. For some, income means the money coming in, such as What is your family income? What is your interest and dividend income?

Generally, accountants use the term revenue for the gross amount received, but the IRS may use the term income to mean the gross amount received.

While accountants use the term revenues when referring to a company’s sales of its merchandise, the same accountants will use the term income to mean the amount a company received in interest and dividends on its investments. The investment interest and dividend amounts earned will be reported on the income statement as other income.

To provide more clarity, accountants use the term net income to describe the amount remaining after expenses and losses are subtracted from revenues and gains. However, the income statements of large U.S. corporations will frequently use the term earnings instead of net income.

Definition of Profit

The term profit is used in various ways. For example, a company’s sales minus its cost of goods sold is referred to as the company’s gross profit. Net profit could also mean a corporation’s net income after income tax expense. Many business owners refer to the company’s income statement as the profit and loss statement or the P&L.

A company reporting a positive amount of net income will be referred to as being profitable.

It is wise to understand that financial terms can be used differently by different people.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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