What the bottom line includes
Net income is the last line of the income statement. It starts with revenue, subtracts the cost of goods sold to reach gross profit, then subtracts operating expenses, interest and other items. After income tax is deducted, what remains is net income for the period.
Because it is calculated for a defined period, always check which period the statement covers. A strong quarter inside a weak year, or a one-off gain from selling equipment, can make net income look different from what the business normally earns.
Why net income is not cash in the bank
For illustration, a business records $100,000 of net income for the year. In the same year it invoiced a large job in December that the customer has not yet paid, bought $30,000 of equipment with cash, and repaid $10,000 of loan principal. Net income counts the December sale, but it does not treat the full equipment purchase or the loan principal repayment as expenses, so the bank balance can sit far below $100,000.
Owner withdrawals work the same way. They reduce cash without being an expense. A cash flow view and a balance sheet are needed beside the income statement to see the full picture.
Why net income is not taxable income
Accounting profit is the starting point for tax, not the answer. Tax rules can allow or deny items differently from accounting. Personal expenses cannot be deducted. The cost of capital property is generally not deducted in full when it is bought. Instead you claim capital cost allowance over time, which can differ from the depreciation shown in the accounts.
Timing can differ too. The CRA generally requires business income to be reported in the period it is earned, whether or not it has been paid, with exceptions for certain farmers, fishers and commission agents. Books kept on a cash basis may not match that. Do not estimate a tax bill by applying a rate to unfinished net income.
What to discuss with your accountant
Ask whether the books are complete before relying on the number: unpaid bills, accruals, inventory counts and owner transactions all change it. Ask which items will differ for tax and how large those differences are likely to be.
Pair net income with a dated cash forecast before deciding on withdrawals, hiring or equipment. Profit tells you whether the business is earning its keep, and cash tells you whether it can pay this month’s bills.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- What is an income statement?BDC
- Cash flowBDC
- Accounting for your earningsCanada Revenue Agency
- Business expensesCanada Revenue Agency
- Claiming capital cost allowanceCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.