Final answer:
Net income refers to the profitability of a company after all expenses and taxes have been deducted from total revenue. It also indicates the money an individual retains post-deductions and taxes. At the national level, net income can be seen as the after-tax income representing the nation's economic output.
Step-by-step explanation:
Net income is a crucial financial metric used in business accounting that reflects the profitability of a company. It is determined after subtracting all expenses, taxes, and costs from a company's total revenue. The formula to calculate net income is: total revenue minus total expenses equals net income.
For individuals, net income also plays an important role. It is the money a person earns (commonly referred to as gross income) after deductions and taxes are subtracted from their total earnings. This amount is significant for both taxpayers and businesses because it provides a clear picture of the actual financial gain after all obligations are settled.
Personal Income and Disposable Income
Within the context of national economics, net income can also relate to national income. Here, it includes the total income earned in a nation, including wages, profits, and rent, and represents the wealth generated by the country through the production of goods and services, as well as income earned by its citizens and corporations.
Calculating after-tax income involves taking the national or personal gross income minus the taxes to obtain the amount available for spending or saving. For example, when we calculate national income at a certain level and subtract the taxes, we derive the after-tax income which is net income at the national scale.