We explain what income is and the types of income that exist. In addition, its definition in different areas such as accounting and economics.
What is income?
It is called income to increase in economic resources that an organization, a person or an accounting system presents, and that 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 the same (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 revenue. Those that the State or its various agencies receive 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 way, that is, habitual, such as wages and regular payments.
- Extraordinary income. Those that come from unforeseen or unexpected events or happenings, such as the issuance of government bonds or winning the lottery.
- Total revenue. 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 one more unit is positioned than expected.
- Average income. An indicator obtained from the average of the products sold, that is, the total income among the total units sold.
Entry into accounting
Business accounting views income as the increase in the net worth of a company, either due to the increase in the value of its assets (increased earnings, for example), or due to the decrease in its liabilities (such as the maturity of a debt).
In this calculation, the contributions of partners and owners are not considered, however, since these must eventually return to the hands of investors.
Usually a distinction is made between income from the sale of goods or from the provision of services. However, whether or not the income is monetary, they are framed in the same calculation of consumption and profit.
Entry into economics
Income in economics are equivalent to the total earnings that an entity receives in the budget, be it public, private, individual or group. It is one of the essential 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.
What’s more, can be reinjected into the economic circuit, generating dynamism and movement in the economic system, all of which often translate into growth.
Income and expenses
Income and expenses are opposite terms. Said opposition is based on the fact that the income is linked to the entry of capital into an organization or system, the result of its profits and its economic activity; while expenditures point to the opposite process: the outflow of capital or money disbursements 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 productive circuit and must return at the end of the cycle. Instead, extraordinary payments and monetary losses or not, 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 national income and therefore to the quality of life and the level of consumption in that society. It is usually calculated according to the following formula:
Per capita income = 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.