What Is Net Income? Definition & Formula

Net income is the bottom line — what's left after you subtract every expense (COGS, overhead, interest, taxes) from your total revenue. It's the truest single measure of whether your business made money.

The formula is simply Total Revenue − Total Expenses = Net Income. It's the last line of your profit and loss statement, which is why it's often called 'the bottom line.' When net income is negative, it's a net loss.

Why it's not cash: net income is an accounting figure, not your bank balance. It can include non-cash expenses like depreciation, and it ignores money tied up in receivables, inventory, or loan principal. A business can post strong net income and still be short on cash — which is why you read it alongside the cash flow statement.

Where it goes: net income that isn't distributed to owners accumulates on the balance sheet as retained earnings, the running total of profit the business has kept over its lifetime.

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Net Income FAQ

What is net income?

Net income is what remains after subtracting all expenses — cost of goods sold, operating expenses, interest, and taxes — from total revenue. It's the bottom line of the profit and loss statement and the clearest measure of profitability.

Is net income the same as cash?

No. Net income is an accounting measure of profit; it can include non-cash items like depreciation and excludes cash tied up in receivables, inventory, or loan payments. A business can be profitable on paper yet short on cash, which is why net income is read alongside the cash flow statement.

Part of the Tides Bookkeeping Glossary — and the complete guide to small business bookkeeping.