How to Calculate Income
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Accounting Glossary
- Accounting 101
- Accounting Software
- Accounts Payable
- Accounts Receivable
- Accrual Accounting
- Adjusted Trial Balance
- Amortization
- Audit
- Bad Debt Expense
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- Bank Reconciliation
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- Cash Flow Statement
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- Class Tracking
- Comprehensive Income
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- Contractor vs Employee
- Cost of Goods Sold (COGS)
- Cost of Sales
- CPA, Controller, CFO
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- Depreciation schedule
- Direct Cost
- Double-Entry Bookkeeping
- Earnings Before Interest and Taxes (EBIT)
- Equity
- Financial Reviews
- Fiscal Policy
- Fiscal Year
- Fixed Cost
- GAAP
- General Ledger
- Gross Margin
- Gross Profit
- How to Calculate Income
- Income Statement
- Indirect Cost
- Internal Control
- Inventory
- Journal Entry
- Liability
- Liquidity
- Modified Adjusted Gross Income
- Monetary Policy
- Net Income
- Operating Expenses
- Operating Margin
- Payroll Taxes
- Prepaid Expense
- Profit Margin
- P&L Statement
- Retained Earnings
- Return on Investment (ROI)
- Revenue Recognition
- Sales Revenue
- Straight-Line Depreciation
- Tax Liability
- Trial Balance
- Unearned Revenue
- Variable Cost
- Variance Analysis
- Wage Expense
- Working Capital
- Write-Off
- Yield
- Zero-Based Budgeting (ZBB)
How to Calculate Income
Calculating income is essentially deducting costs and expenses from profits.
It starts by calculating the total amount of sales made during accounting and is followed by deductions for certain costs or other operating expenses. When all is said and done, the company learns how much it earned or lost during the accounting period.
The only revenue that should be included is money brought in from sales or services that have been earned and received, not monies expected or accounts receivable. The bottom line is gross revenue. For deductions, money that a company does not expect to collect, as well as returns and allowances, should be added to the cost of goods sold, salaries, and overhead, but the cost of inventory that has yet to be sold should not be included. Asset depreciation for machinery, tools, and furniture should also be calculated.
The company’s expenses and additional expenses combined are known as the total expenses. When these total expenses are deducted from the gross revenue, that is the net income or business income.
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