Final answer:
Net income is the profit calculated as total revenue minus explicit costs, while comprehensive income includes net income plus unrealized gains or losses and other items that affect the company's economic performance but are not realized through everyday business activities.
Step-by-step explanation:
Difference Between Net Income and Comprehensive Income
The terms net income and comprehensive income are crucial in understanding a company's financial performance. Net income, also known as accounting profit, is calculated as total revenue minus explicit costs – this represents the amount of money that a company brings in minus the money it pays out. Comprehensive income includes net income but goes further to include other comprehensive income (OCI) which encompasses items not realized through daily business operations such as unrealized gains or losses on investments, foreign currency translations, and certain pension plan gains or losses.
While a business pays income taxes based on its net income, whether or not it is economically successful depends on its comprehensive income, which provides a broader measure of profit that includes both explicit and implicit costs. Economic profit takes into account total revenue minus total cost, thereby including factors that net income does not. Therefore, comprehensive income gives a more inclusive picture of a company's economic performance.