book-1798The term “net income” refers to what’s left of your gross income after expenses.

To review: gross income is money coming in the door before expenses are accounted for.

Net income is what’s left after expenses. If you spent more than you took in, you have a net loss.

For businesses with inventory, there’s actually a “middle” step involved in the calculation of net income or net loss. The formula in that case is: gross income – cost of goods sold = gross profit. Gross profit – expenses = net income or loss.

You’ll sometimes see net income referred to as “net profit” instead.

For more glossary terms, check out the extensive Glossary section on this website.

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