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How do you define profit income?
What are the essential elements you should know!
In this article, we will break down the meaning of Profit Income so you know all there is to know about it!
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Table of Contents
What Is Profit Income
Profit income is sometimes loosely used to refer to the amount of money a company or person may have generated in profits from their income.
Keep in mind that there are many terms that are used on a day-to-day basis by business people or individuals where their official meaning may not be the same.
An accountant or finance expert would refer to profit income as net profit or net income.
As a result, “profit income” is a term loosely used to refer to how much a company may have generated in profits.
Let’s decompose the phrase profit income to better understand it and then see how it differs from net income.
We typically use the term “profit” to refer to revenues that exceed the overall expenses.
You could have different types of profit figures such as gross profit, operating profit, or other.
Businesses make decisions based primarily on the profitability of a project either top-line profits, bottom-line profits, or any other number relevant to the business.
What is income now you say?
Income generally refers to how much money was received for work, services, sale of products, or any other sources.
You can have different types of income as well:
- Active income
- Passive income
- Portfolio income
You earn active income when you actively participate in generating the income like an employee earning a salary.
You earn passive income when there is an income-producing asset that provides you with an income like rental revenue and where you do not actively participate in generating the income.
You earn portfolio income through investments like dividend income, interest income, and capital gains.
Income can also be used to refer to a specific type of income calculation such as operating income, top-line income, net income, or other.
The calculation of income is a measure of a company’s profitability and ability to generate revenues.
Net income is the result of a specific calculation performed by a company in order to find how much money was leftover during a given period.
In a company’s income statement, you start with your total revenues coming from all sources and then you deduct various expenses such as operating expenses and cost of goods sold.
Then you deduct non-cash expenses such as depreciation and amortization.
Finally, you deduct taxes.
What you are left, in the end, is the net income as reported on the income statement.
Net income can also be called net profits, net earnings, or even the bottom line.
“Profit Income” Takeaways
The term “profit” and “income” do not necessarily mean the same thing.
However, you may find some people use the term profit income loosely speaking.
The idea that you try to convey by saying “profit income” is the amount of money that you generated in profits from your income.
Income refers to the revenue you earn whereas profit refers to your revenues less certain expenses.
Let’s look at a summary of our findings.
Define Profit Income
If you enjoyed this article on Profit Income, we recommend you look into the following terms and concepts. Enjoy!
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