Definition: The word earnings can be used in a number of different ways in the accounting world. I know this can be kind of confusing when you are first trying to get a handle on these accounting concepts. Luckily, earnings is usually only used in two different ways: topline or bottom-line earnings.
What Does Earnings Mean?
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Topline earnings make up the total revenue or gross sales of a company. This number is usually the first number presented on a Profit and Loss statement. Many people refer to the topline as earnings because this is the amount of money that a company earned throughout the year. This form of earnings can be interchangeable with the term revenues.
Bottom-line earnings are the complete opposite. When someone uses the word earnings to refer to bottom-line earnings, they are really talking about net income or net earnings. This is usually the last number presented on a Profit and Loss statement. This usage makes sense too when you think about it. Net income is the amount of money that the company actually gets to keep. This is the money left over after it has paid all of its expenses. So some people look at this as the true earnings of the company.
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Using the word earnings to refer to gross sales or net income is perfectly acceptable. I just want you to know the difference and be able to understand when other people talk about earnings in different ways.
