NET INCOME
GROUP 1
ICE BREAKER
TRUE OR FALSE
1. Net income is what's left after all expenses are paid."
2. Gross income includes taxes."
3. Operating expenses include salaries and rent."
ICE BREAKER
TRUE OR FALSE
1. Net income is what's left after all expenses are paid."
TRUE
Net income is the final profit a company has after
deducting all expenses, including operating expenses,
taxes, interest, and other costs, from its total revenue
ICE BREAKER
TRUE OR FALSE
2. Gross income includes taxes."
FALSE
Gross income is simply the money earned from sales or
services before any deductions.
ICE BREAKER
TRUE OR FALSE
3. Operating expenses include salaries and rent."
TRUE
Operating expenses are the day-to-day costs of running a
business, which include salaries, rent, utilities, marketing,
and other indirect costsv
What is Net Income?
It is a measure of difference of total revenue that the company
realizes and its total expenses, tax, and cost, excluding all of the
above, also called the bottom line since it usually appears last on
the income statement of the company.
The net income of an organization is a measure of its profitability
and health. It shows whether the company has made a profit, as
indicated by a positive figure, or lost money, as indicated by a
negative figure.
It represents the profit left over after all costs are
subtracted from earnings. This metric offers a clear view of
how profitable an entity is and how healthy its finances are.
Understanding the different terms related to net income is
crucial for making smart financial choices.
Importance of Net Income
[Link] Financial Performance: Net Income indicates whether the
business is making a profit or loss.
2. Decision-Making: Based on the net income, businesses can make
strategic decisions regarding investment, cost-cutting, or expansion.
3. Financial Statements: Net Income is a key figure in financial reports like
the Income Statement (Profit and Loss Statement), which is crucial for
presenting a company’s performance to shareholders and creditors.
4. Taxation: It determines the amount of tax that the business owes to the
government, since taxes are generally based on net income.
Factors Affecting Net Income:
Revenue Growth: An increase in sales will boost net income, while a drop in
revenue will reduce it.
Operating Expenses: High expenses, such as salaries, rent, utilities, or
marketing costs, can decrease net income.
Cost of Goods Sold (COGS): The cost of producing goods or providing services
can directly affect profitability.
Taxes and Interest: Higher taxes or interest expenses (on loans) can reduce
net income.
EXAMPLE
At the end of the month, the owner of "SWIT TRITS," a small bakery
specializing in cakes and cookies, reviews the financials. Total sales
reached ₱200,000 (₱150,000 from cakes and ₱50,000 from cookies). The
bakery's expenses were ₱70,000 for Cost of Goods Sold, ₱50,000 in
operating expenses, ₱10,000 for miscellaneous costs, and ₱20,000 in
taxes.
The bakery also earned ₱3,000 in interest income but paid ₱5,000 in
interest expenses. After calculating all costs and taxes, the bakery’s wants
to know how much Net Income earned the business
EXAMPLE SWIT TRITS
Statement of Comprehensive Income as of September 30 2024
Sales
Cake Sales 150,000
Cookie Sales 50,000
Gross Profit
Less: Operating Expenses
Cost of Goods Sold (COGS) 70,000
Operating Expenses (rent, utilities, salaries) 50,000
Miscellaneous Expenses (packaging, delivery) 10,000
Total Expenses
Operating Income
Other Income/Expenses
Interest Income 2,000
Interest Expense 5,000
Net Other Expenses
Income Before Tax
Less: Income Tax (20%)
Net Income
EXAMPLE SWIT TRITS
Statement of Comprehensive Income as of September 30 2024
Sales
Cake Sales 150,000
Cookie Sales 50,000
Gross Profit 200,000
Less: Operating Expenses
Cost of Goods Sold (COGS) 70,000
Operating Expenses (rent, utilities, salaries) 50,000
Miscellaneous Expenses (packaging, delivery) 10,000
Total Expenses 130,000
Operating Income 70,000
Other Income/Expenses
Interest Income 2,000
Interest Expense 5,000
Net Other Expenses 3,000
Income Before Tax 67,000
Less: Income Tax (20%) 13,400
Net Income 53,600
Key Terminologies or Other
term for Net Income
- Net Earnings: A synonym for net income, often used to emphasize the
profit generated from a company's operations.
- Net Profit: Another term for net income, highlighting the profit remaining
after all costs have been deducted.
- Gross Income: The total revenue earned before any expenses are
deducted.
- Cost of Goods Sold (COGS): The direct costs associated with producing
or acquiring the goods sold by a business.
Key Terminologies or Other
term for Net Income
- Operating Expenses: The indirect costs incurred in running a business, such as
salaries, rent, utilities, and marketing.
- Earnings Before Interest and Taxes (EBIT): A measure of a company's profitability
before deducting interest expense and taxes.
- Earnings Before Taxes (EBT): The profit earned before deducting taxes.
- Retained Earnings: The portion of net income that a company keeps for future
investments or growth, rather than distributing it as dividends.
- Profit Margin: A financial ratio that measures a company's profitability by dividing net
income by revenue.
Thank You