Concept Of Income In Accounting

Concept Of Income In Accounting

We explain what is the income and the types of income that exist. In addition, its definition in different areas such as accounting and economics.

Revenues are the increase of economic resources.

1. What is income?

Income is defined as the increase in economic resources presented by an organization , a person or an accounting system, and which constitutes an increase in their net worth. This term is used with similar technical meanings in different areas of economic and administrative activity.

For example, the total that a company receives for the sale of its products is called income (in English  revenue ), but also the total of the incomes received by the citizens of a nation is called equal (in English  income ).

Depending on the specific meaning, income can be a variable considered when measuring economic and financial performance, or when designing accounting and administrative plans.

Types of income

The income can be classified into different categories, such as:

• Public income . Those that receive the State or its different dependencies from taxes and other collection mechanisms.
• Private income . Those that concern private companies or private groups, whether or not they are for profit.
• Ordinary income . Those that are obtained in a customary manner, that is, habitual, such as salaries and regular payments.
• Extraordinary income . Those that come from unforeseen or unexpected events or events, such as issuing government bonds or winning the lottery.
• Income s  Total is . The sum of what is perceived by an organization or a company due to its regular commercial activity, that is, when selling all its products or services.
• Marginal revenue . In microeconomics , it is called the increase of the total sale of a sector, when a unit is positioned more than expected.
• Average income . An indicator obtained from the average of the products sold, that is, the total income among the total units sold.

It can help you: Financial Statements .

2. Income in accounting

In accounting, a distinction is made between income from the sale of goods or the rendering of services.

Business accounting considers income as the increase in the net worth of a company , either due to the increase in the value of its assets (increase in profits , for example), or due to the decrease of its liabilities (such as the maturity of a debt ).

In this calculation the contributions of partners and owners are not contemplated, however, since they should eventually return to the investors.

A distinction is usually made between income from the sale of goods or the provision of services. However, whether the income is monetary or not, they are framed in the same calculation of consumption and profit.

3. Income in economy

In economics, income is the total of the profits of an entity.

The income in economy is equivalent to the total of the earnings that an entity receives budgeted , be it public, private, individual or group. It is one of the indispensable elements in any economic evaluation, whether monetary or not, as a result of the consumption-profit circuit.

The presence and nature of income in a society are part of the elements that characterize the social, political and cultural relations that this presents, since they have an impact on the quality of life and economic stability.

In addition, they can be reinjected into the economic circuit , generating dynamism and movement in the economic system, all of which often translates into growth.

4. Income and expenses

Expenses are the capital outflow that the organization must do.

Income and expenses are opposite terms. This opposition is based on the fact that the income is linked to the entry of capital into an organization or system, as a result of its profits and its economic activity; while the expenditures point to the opposite process: the outflow of capital or disbursements of money that the organization must make, but which result in loss or decrease in net worth.

In other words, regular payments and investments are not considered expenditures , since they are part of the ordinary productive circuit and must return at the end of the cycle. On the other hand, extraordinary payments and monetary losses or not, must be recorded as an exit.

5. Income per capita

Per capita income calculates the income of the inhabitants in relation to national income.

It is called per capita income (income per head) to an indicator that consists of the calculation of the income of each one of the inhabitants, their families, companies, organizations, etc., in relation to the national income and therefore with the quality of life and the level of consumption of said society . It is usually calculated according to the following formula:

Income per capita = National income (IN) / Total population (PT)

Per capita income is often used to establish economic comparisons between countries or regions , and thus establish the rate of progress of a country with respect to its neighbors or similar.