How to Calculate Net Income in Accounting

Accounting for Net Income

Net income determines how much a company made during a specific time period. Companies report net income on their financial statements, specifically the income statement. A positive net income indicates that a company made a profit in a specific time frame, whereas negative net income shows that a company lost money in that same time period. Net income is usually calculated on a monthly, quarterly or yearly basis.

Instructions

1. Determine then add together all revenues for the specified time period, either monthly, quarterly or annually. Revenues are cash inflows from operations, such as sales.

2. Identify then add together all gains within the same time period. Gains are not from operations but are general gains on items, such as selling an asset or from a lawsuit.

3. Calculate expenses for the specified time frame. Expenses are cash outflows involved with operating the firm. These include items such as cost of goods sold and general administrative costs.

4. Calculate losses for that same time period. Losses are from non-operation related sources, such as the loss incurred by selling a long-term asset or from a lawsuit.

5. Add together revenues and gains to determine total inflows then add together expenses and losses to determine total outflows.

6. Subtract the total outflows from the total inflows to determine net income.

References

• Investopedia: Net Income
• Accounting Coach: Net Income
• Accounting Coach: Income Statement