We explain what income is and the types of income that exist. Also, its definition in different areas such as accounting and economics.
What is income?
It is called entry to 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 work.
For example, the total that a company receives from the sale of its products is called income (in English revenue), but also the total income 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
Income can be classified into different categories, such as:
- Public income Those received by the State or its various agencies 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, that is, habitual, manner, such as regular salaries and payments.
- Extraordinary income Those that come from unforeseen or unexpected events or events, such as the issuance of government bonds or winning the lottery.
- Total income The sum of what is received by an organization or a company due to its regular commercial activity, that is, when selling all its products or services.
- Marginal income. In microeconomics, this is the name given to the increase in the total sale of a sector, when a unit is positioned higher than expected.
- Average income. An indicator obtained from the average of products sold, that is, the total income divided by the total units sold.
Entry into accounting
Business accounting considers income as the increase in the net worth of a company either due to the increase in value of its assets (increased profits, for example), or due to the decrease of its liabilities (such as the maturity of a debt).
This calculation does not take into account the contributions of partners and owners, however, since these must eventually return to the hands of the investors.
Usually a distinction is made between income from the sale of goods or the provision of services. However, whether the income is monetary or not, it falls within the same calculation of consumption and profit.
Entry into economics
income in economics are equivalent to the total profits that an entity receives budgetarily whether public, private, individual or group. It is one of the indispensable elements in any economic evaluation, whether monetary or not, the 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 it presents, since they have an impact on the quality of life and economic stability.
Besides, can be reinjected into the economic circuit generating dynamism and movement in the economic system, all of which often translates into growth.
Income and expenses
Income and expenses are opposite terms. This opposition is based on the fact that income is linked to the entry of capital into an organization or system, the result of its profits and its economic activity; while expenses point to the opposite process: the outflow of capital or disbursements of money that the organization must make, but which translate into a loss or decrease in net worth.
In other words, Regular payments and investments are not considered expenses since they are part of the ordinary production circuit and must return at the end of the cycle. On the other hand, extraordinary payments and monetary or non-monetary losses must be recorded as an expense.
Per capita income
Per capita income (income per head) is an indicator that consists of calculating the income of each of the inhabitants, their families, companies, organizations, etc., in relation to the national income and therefore to the quality of life and the level of consumption of said society. It is usually calculated according to the following formula:
Per capita income = National income (IN) / Total population (PT)
Per capita income It is often used to establish economic comparisons between countries or regions and thus establish the pace of progress of a country with respect to its neighbors or peers.
