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 Subject: Calculating Net Income Category: Business and Money > Accounting Asked by: ydorb-ga List Price: \$5.00 Posted: 09 Jul 2006 11:11 PDT Expires: 08 Aug 2006 11:11 PDT Question ID: 744702
 ```How do I calculate net income or 2004 if I have year end account balances as follows: 2003 - \$200,000 2004 - \$250,000 In 2004 - issued \$15,000 in stock and had \$20,000 in dividends.```
 ```Here's a formula to answer this question: 2004 net income = 2004 ending balance - 2004 starting balance - cash received from issuance of stock + cash paid out in dividends. In numbers, we have 2004 net income = \$250,000 - \$200,000 - \$15,000 + \$20,000 = \$55,000. These figures would be found on the company's Statement of Cash Flow. In summary, you observe that the company has \$50,000 more cash at the end of 2004 than it started with, and during 2004 it paid \$20,000 and received \$15,000, meaning that it must have earned (net income) \$55,000 during the year.```
 ```You did not specify which account balances those are. If they are retained earnings balances (as opposed to cash), you can calculate net income easily. Stock issuance has no effect and is ignored. Dividends are added back since they are subtracted from retained earnings but have no bearing on net income. Therefore Net income for 2004 will be \$70,000.```