Net income

Net income is what’s left after every expense is subtracted from revenue over a period — cost of goods sold, operating expenses, interest, and taxes. It is the last line of the profit and loss statement, which is why it’s called “the bottom line,” and it is also known as net profit or net earnings.

Net income flows onward into the rest of the books: it increases retained earnings in the equity section of the balance sheet, tying the period’s profit to the cumulative value the business has kept over its lifetime.

Net income is the figure owners, lenders, and buyers look at first to judge whether a business actually makes money. But it is the end of a long chain: every miscategorized expense, every revenue recorded in the wrong period, and every personal cost mixed into the business changes it directly. A confident net-income number on unreconciled books is a confident guess.

Because so much rolls up into it, net income is also where bookkeeping errors become visible — an implausible bottom line is often the first sign a file needs a cleanup before the number can be trusted or acted on.

A business can show strong net income and still be short on cash — and the reverse. Profit can be tied up in unpaid receivables or inventory, while loan principal and owner draws drain cash without ever touching net income. That is why the bottom line is read alongside the cash flow statement, not on its own. Net income answers “did we make money?”; the cash flow statement answers “where did the cash go?”