What is the difference between income and net income?
If you are a business owner (even a home business owner)
it is important that you know and understand that there is a
major difference between the two.
The term income is often mistakenly used interchangeably
with the term net income but there is actually a huge difference.
Income is term which is loosely used to mean the total earnings
of the business.
Net income, is the net profit or net earnings, is a bottom-line
calculation that factors in many other financial components.
Let’s use this example…
We will image that you have a widget business. Your goal is to
earn $10,000 per month selling widgets. At the end of the month
you look back over your sales and see that you sold $10,000 in
widgets. Awesome right?
Not necessarily…What if you earned $10,000 from the sale of
widgets but you spent $9,000 on advertizing, campaigns, marketing,
fees, and other related expenses you incurred while getting the $10,000
That’s where the “net income” comes in. In this particular scenario,
you would have only had a “net income” of $1,000.
I know this may sound like an accounting lesson but believe me,
it is a very important accounting lesson.
When setting your goals (Major Definite Purpose) which I hope you
have done, remember that you are seeking “net income” or “profit”.
“By the first day of ________, I will have in my possession
$________________ PROFIT (net income/residual income) which will
come to me in various amounts from time to time during the interim.”
Being specific in setting your goals is a must that’s why it is i
mportant to know the difference between income (sales) and
net income (profit).
To put it as simply as possible income – expenses = net income.
Obviously, there are more factors to consider in the accounting
equation but for the purpose of this article, we are not going into
assets, liabilities, profit & loss, equity, return on assets or other
aspects of operating a successful business.
Those components will be discussed in future articles.
If you received value from this article explaining the difference
between income and net income, please leave comments below
and share with someone who will benefit from this information.
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