To find net income, use the formula: Net Income = Total Revenue - Cost of Goods Sold (COGS) - Total Expenses Alternatively, this can be simplified as: Net Income = Total Revenue - Total Expenses Where:
- Total Revenue is all money earned from sales and other income sources.
- Cost of Goods Sold (COGS) includes direct costs of producing goods or services.
- Total Expenses cover operating costs such as rent, salaries, utilities, taxes, interest, and other business expenses.
For example, if a business has $500,000 in total revenue, $200,000 in COGS, and $180,000 in other expenses, then: Net Income = $500,000 - $200,000 - $180,000 = $120,000 Net income shows the actual profit after all costs and expenses have been deducted from revenue. It can be positive (profit) or negative (loss).
