To avoid confusion, “income” should refer strictly to Net Income (or Net Profit), the bottom line of the Income (or P&L) Statement reflecting a company’s actual earnings after all expenses and taxes are deducted from Net Sales.
Primary Implication
You make business terms easier for everyone to understand when you avoid the loose use of the word Income, given the multiple meanings that can easily be attributed to these six letters.
Overview
For a business, Income refers to the net profit reported on the Income Statement. A financial statement that is also referred to as the Profit and Loss or P&L Statement. Net Income is what remains after expenses and taxes are subtracted from revenue.
The word Income is also used to represent the money received from sales in exchange for providing a product or service or through investing capital that generates a return. To further complicate the use of the word top line income is not the same as bottom line income on the Income Statement.
Revenue is the income or total amount of money a company generates before any expenses are subtracted from the calculation. In contrast, Gross Sales or the top line is defined as the total value of the sales made of products and services. Net Sales represent the actual money collected from those sales.
Net profit, or the bottom line, is the amount of income that remains on the P&L Statement after accounting for all expenses, debts, additional income streams, and operating and nonoperating costs.
Remember, it is the Net Income representing your bottom-line profits that ultimately matters, so keep things simple by limiting the use of the word “income” to profits. The value of your Net Sales after all expenses are deducted from them.
