Computing Net Income Using Accounting Equation is a fundamental business concept that provides an understanding of how to identify the financial performance of a company. It requires breaking down all of a firm’s expenses and revenues into three elements—assets, liabilities, and owner’s equity. By measuring these values and working out the difference between them—the net income—a company can determine whether it has made a profit or loss each accounting period. With this knowledge, businesses can develop strategies to improve their bottom line and build a successful future.