In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period.
[1][better source needed] It is computed as the residual of all revenues and gains less all expenses and losses for the period,[2] and has also been defined as the net increase in shareholders' equity that results from a company's operations.
Net income can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings.
In simplistic terms, net profit is the money left over after paying all the expenses of an endeavor.
The bookkeeper or accountant must itemise and allocate revenues and expenses properly to the specific working scope and context in which the term is applied.
For a product company, advertising, manufacturing, & design and development costs are included.
Net profit: To calculate net profit for a venture (such as a company, division, or project), subtract all costs, including a fair share of total corporate overheads, from the gross revenues or turnover.
"Almost by definition, overheads are costs that cannot be directly tied to any specific" project, product, or division.
Because overhead costs generally do not come in neat packages, their allocation across ventures is not an exact science.
[6] Net profit on a P & L (profit and loss) account: Another equation to calculate net income: Net sales (revenue) - Cost of goods sold = Gross profit - SG&A expenses (combined costs of operating the company) - Research and development (R&D) = Earnings before interest, taxes, depreciation and amortization (EBITDA) - Depreciation and amortization = Earnings before interest and taxes (EBIT) - Interest expense (cost of borrowing money) = Earnings before taxes (EBT) - Tax expense = Net income (EAT)