The concept of income refers to the total consumption and production potential of an entity during a given time period, which is usually expressed in monetary units. Income may be permanent or temporary. In a typical economy, income is created through the sale of products to customers, payment of wages to workers and other direct exchanges with people. On the other hand, revenue is generated through the collection of various types of payments from customers, property rentals and other transactions that create value in the market.
The net income statement then shows the difference between income and the total amount of money due to creditors, including fees and interest. It also includes an estimate of revenue growth, taking into account the effect of dividends and other capital gains. The bottom line is usually released quarterly and provides investors a summary of how each quarter’s income and revenue have performed compared to the previous quarter. All numbers in this report are always prepared in millions of dollars unless otherwise stated.
Net Income Statement The third part of an income statement is called the net income statement. This statement shows the gross profit less the expenses. These two items should be separated due to their different nature. In most cases, the gross profit shows the total amount of money made from sales while the expenses show the cost of goods sold. These statements show how the company makes a profit and at what cost. The difference between the two is how much can be spent on various expenses such as rent or overhead.
Bottom Line: A company’s net income or bottom line tells how much money is made in a year from all of the business activity. If the profit and loss statement shows an increase over the previous year, it is most likely that the business is doing very well and will continue to do so in the future. On the other hand, a company that shows a loss will tell the shareholders that their cash flow has come to an abrupt halt because of one reason or another. Many companies have many different reasons for showing a loss in order to keep the shareholders happy. There are many different accounting journals that need to be reviewed to get a complete picture of the financial situation of a company.
The other section of an income statement is called the revenue performance. This section will show the following: first, how much revenue the company made in the last year, and second, how much revenue the company earned in the previous year. Basically, revenue is the amount of money that companies make in one year. The bottom line here is that if a company makes more money than it spent, its bottom line profit margin will be higher.
The difference between ordinary income from business is that the latter has to pass through the income tax system. This is because businesses have revenue that is not deducted from the income of the proprietor. If this income was taxed, then the company would lose its attractiveness for investing. In effect, it would no longer be feasible to continue running a business in the present day scenario.
For persons earning their salaries as employees, the income earned will come from different sources. These include their salaries, commissions, bonuses, other employee benefits such as insurance, etc., and also other sources such as property rental and income from various investments. The amount earned from these sources depends on the total income of the company. The capital gains on the other hand are realized when the income is paid out to the proprietor/employee. Hence the net income and capital gains are the two sides of the same coin.
There are two basic categories of income tax that are based on paycheck: the standard deduction and the itemized deduction. The standard deduction allows individuals to deduct expenses that are deducted on their personal income taxes. For individuals who have a paycheck, the standard deduction can also be applied to business income taxes and mortgage interest. The itemized deduction, however, is for individuals that receive distributions from any source, including paycheck, IRAs, and other retirement accounts. Only the standard deduction is available for individuals who have incomes of less than a certain amount. Married couples must also file a joint return, in order to take advantage of the maximum deductible amount.
Business and investment income can be deducted with itemized deductions as well. Some of these are business casualty loss, corporate taxes, U.S. estate taxes, and interest income. These are some of the most common deductions people claim. Any increase in your adjusted gross income, or standard deduction can usually be claimed with itemized deductions.
The final step is to determine your tax liability. This includes revenue loss, federal income taxes, payroll taxes, and state income taxes. Once you have determined your liability, this will be the amount you owe to the government. Your tax liability is usually the higher of the three numbers. In order to figure out how much to pay, you must divide your total liability by the total revenue number.