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What is net income?

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The difference between earnings before interest and taxes (EBIT) and earnings before taxes (EBT) is an entity’s financial results.  Financial results is determined by the earning or loss resulting from the firm’s financial affairs, commonly comprised of:

A residual account into which miscellaneous nonoperating revenues and expenses are netted is nonoperating income.  Nonoperating income includes such items as dividend income, profits and losses from investments, gains and losses incurred due to foreign exchange movements, asset write-downs, and other nonoperating revenues and expenses.

For a financial gain or loss to be classified as an extraordinary item, it must be (i) of material size, (ii) resulting from an event or transaction that is unusual and infrequent in occurrence, and (iii) beyond the entity’s control.  Extraordinary items are not allowed under International Financial Accounting Standards (IFRS) or under US GAAP for public issuers after December 15, 2015.

The amount of a company’s total revenue remaining after subtracting all of its costs and expenses in a given period of time is its net income.  Net income represents an increase and net loss a decrease in assets and owners’ equity, respectively.

Arriving at Net Income
      Operating Profit (Loss)
−    Other Revenue/Expenses
    Income Taxes                     
=    Net Income (Loss)

Comprehensive income is all income and expenses recognized during an accounting period as a result of all changes in equity except those due to investments by owners (capital increase) and distributions to owners (dividends), including revenue, finance costs, tax expenses, discontinued operations, profit share and profit.  Under both US GAAP and IFRS, entities must report components of comprehensive income in either a single continuous statement of comprehensive income or two separate but consecutive statements.

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