The income equation is the official business definition of how you calculate your net income. It takes into account all of the money that goes into and out of your business activities and calculates your total earnings or losses. This formula consists of five basic components: Total Revenue, Total Expenditures, Total Assets, Total Liabilities, and Equity. You can accurately identify where your profits are going by understanding this equation, so you can make better decisions and maximize your earning potential. Every successful business owner knows that a keen eye for detail and mastery of the income equation will be fundamental for creating and maintaining a profitable business model.