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The Difference Between Income and Profit

Posted 05 Jun 16

Although the terms ‘profit’ and ‘income’ can be interchangeable when discussing net and gross figures, there is a difference between them when we refer to net income and net profit after tax.

Understanding the differences between terminology is important, however, the best way to avoid any confusions is to hire a professional and experience accountant who will clear any doubts for you.

Net Income

The main difference between net income and net profit is their placement in your company’s documents. Net income appears on the company’s statement of income. The term refers to the amount that is left after adding together all revenues and deducing all the expenses, including cost of goods sold and income taxes.

Your accountant will analyse your net income to obtain a quick glimpse into your company’s financial health. However, a net loss in one accounting period does not determine the overall state of the business. It can suggest that a certain point during which large investments and purchases have been made. In order to determine the realistic view on your company’s budget, your accountant will need to see the changes of your net income over a period of time along with the reasons why these changes occurred. Hiring a professional and experienced accountant like Tawanda Accountants will allow you to plan your business’s future better and avoid any financial mistakes which can strike your company’s cashflow.

Net Profit After Taxes

After deducting all taxes, your net profit will be referred to as net profit after taxes. It is the sum of all revenues minus the expenses, including cost of goods sold and all taxes. Although it is almost the same as net income, this term often appears on the company’s financial statements in order to differentiate between profits before and after taxes.

Having an insight into your company’s profits after taxes allows you to see the company’s bottom line and the realistic budget you can use for the future investments. In a lot of cases, it also allows business owners to see which expenses have been deduced and consider any expenses which might have remained unclaimed. It is important that you discuss the ways in which you can reduce tax payments with your accountant.

Understand the terminology used by HMRC and Companies House might not be a legal requirement of running your own business, but can be crucial in making the right decisions to create a better future for your business. If you would like to find out the best financial strategy for your business’ individual requirements, contact our accountants at Tawanda Accountants today and we will make sure you benefit the most from the exciting process that is running your own company.