The starting point for preparing the operating activities section using the indirect method is net income.
Sales less cost of goods sold, selling, general and administrative costs, operating costs, depreciation, interest, taxes, and other costs are computed as net income (NI), also known as net earnings. Investors can use this figure to determine how much a company's revenue exceeds its costs. This figure is a measure of a company's profitability and may be found on the income statement.
NI is the remaining amount after taxes and other deductions have been subtracted from gross income, which is the individual's total income or pre-tax income. To determine their taxable income, which is the amount used by the Internal Revenue Service to compute income tax, taxpayers deduct expenses from their gross income. The discrepancy between a person's taxable income and income tax.
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