Net Profit

Net profit is synonymous with net income or net earnings. Accountants interchange these terms. Let’s start with a simple example. Assume Tyler, a preschooler, decides to open a lemonade stand. In this case, his revenue would be the money he earns from selling lemonade to customers.

However, this is not his net profit. Now he must deduct from his revenue all of the expenses he incurred to sell that lemonade, such as the ingredients, the stand, his labor charges, advertising, and so on. His net profit is the amount he has left over.

If the lemonade stand does not generate enough revenue, Tyler may face a net loss, which occurs when the expenses incurred exceed the revenue generated. If Tyler’s revenue and expenses are the same, he is at a break-even point, which means he is not making or losing money.

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