This net income template shows you the calculation of net income using line items from an income statement.
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Net income is the amount of accounting profit a company has left over after paying off all its expenses. Net income is found by taking sales revenue and subtracting COGS, SG&A, depreciation, and amortization, interest expense, taxes and any other expenses.
Net income is the last line item on the income statement proper. Some income statements, however, will have a separate section at the bottom reconciling beginning retained earnings with ending retained earnings through net income and dividends.
The net income is very important in that it is a central line item to all three financial statements. While it is arrived at through the income statement, the net profit is also used in both the balance sheet and the cash flow statement.
Net income flows into the balance sheet through retained earnings, an equity account. This is the formula for finding ending retained earnings:
Ending RE = Beginning RE + Net Income – Dividends
Assuming there is no dividends, the change in retained earnings between periods should equally the net earnings in those periods. If there is no mention of dividends in the financial statements, but the change in retained earnings does not equal net profit, then it’s safe to assume that the difference was paid out in dividends.
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