What is the difference between net income and net profit?
Financial analysis tends to consist of net income and net profit. These two terms tend to confuse many people, especially during their application.
The lesson provides detailed insight into the difference between net income and net profit with a comparison chart for easier understanding.
What Is Net Income?
Net income refers to the actual amount that remains with the business organization after the deduction of dividends given to the preferred shareholder.
Net earnings are another popular named used instead of net income. The amount helps to increase the equity shareholder fund.
What Is Net Profit?
Net profit occurs when total revenue exceeds expenses, interest, and taxes. Its term tends to be shown on the income statement which is a financial record.
Net profit is calculated by subtracting sales from the cost of goods sold. The non-operating income is then added to the resulting figure to obtain net profit.
Comparison Chart: Net Income Vs Net Profit
| Basic Terms | Net Income | Net Profit |
| Meaning | Refers to the amount available in equity shareholders’ fund | Refer to the actual profit earned by the company or business organization |
| Uses | Ideal for calculating earnings per share | Help to show the profitability of the business organization |
| Financial Statement | Does not appear | Appear on income statement account |
| Manipulation | Prone to manipulation | Not easily manipulated |
| Taxable | Yes | No |
Core Differences between Net Income and Net Profit
- Net income increases equity shareholder’s income unlike net profit
- Net income can be manipulated to lure shareholders unlike net profit
- Net profit appear on the income statement of the business financial year records unlike net income
- Net income is taxable while net profit is not taxable
- Net income is ideal for calculating earnings per share whereas net profit for showing the profitability of the business
- Net income refers to the amount available after the deduction of preference shareholders’ dividends while net profit refers to the actual amount earned by the company.
Comparison Video
Summary
The core difference between net income and net profit is that net income is the amount available after the deduction of dividends of the preference shareholders while net profit the actual amount earned by the company or business organization.