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Wize University Introduction to Financial Accounting Textbook > Financial Statements

Net Earnings

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Net Income

Net Income is the net amount earned or lost by a company during an accounting period. It is one of most important figures since the primary purpose of a business it to increase the wealth of it owners, which is typically done by turning a profit.

What is Net Income?

  • Profit or Loss earned by the business during the accounting period
  • Also called Profit (Loss), Net Earnings



Income Tax Expense

  • The portion of the company's earnings before tax that must be paid to tax agencies.



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Earnings Per Share
  • Profit or Loss earned on a per share basis
  • Investors care most about this number

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Example: Net Income

ABC Corporation was organized on January 1, 2020 by three friends who each invested $50,000 in exchange for 25,000 shares of the company. At the end of January, 2020 the following financial data was available:


*Total expenses excludes income taxes
  1. How much should be reported as income before tax?
280,500 - 230,000 = 50,500

  1. How much should be reported as net income?
50,500 - 20,000 = 30,500
  1. What was the company's tax rate?
20,00050,500=0.3960=39.60%\frac{20,000}{50,500}=0.3960=39.60\%
  1. How much should be reported as earnings per share?
30500(75000+80000)2=0.39\frac{30500}{\frac{\left(75000+80000\right)}{2}}=0.39

Practice: Net Income and Earnings per Share

Namaste Inc. is a wholesaler of yoga mats and yoga accessories. The following information was found on the company's year-end financial statements in 2019.



Practice: Net Income and Earnings per Share

In reviewing your company's income statement for 2019, you noticed mistakes in the format, as well as an understatement of $2,000 in the supplies expense reported. Since the statements have already been prepared, you decide to ignore the error. The following is the income statement you prepared containing the errors:

Do not round your work, round your final answer to 2 decimal places