Calculating net income and loss determines an entity’s financial performance over a specific period. It is the difference between total revenue and total expenses. For instance, if a company earns $100,000 in revenue and incurs $60,000 in expenses, its net income would be $40,000.
Understanding net income and loss is crucial for various reasons. It is a key performance indicator, helps in making informed decisions, and is used in financial planning and analysis. Historically, the concept of net income has evolved alongside accounting practices, with the double-entry bookkeeping system being a significant development.