Income: is this all for me or do I have to share?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

In our time, the concept of profitability is more relevant than ever. And if earlier income was a purely entrepreneurial concept, now we are all somehow connected with it.

In fact, income is the amount of cash receipts or material assets of a particular entity (individuals, legal entities or the state as a whole) for a certain period, which is the result of any activity permitted by law.

Besides this, there is also such a term as net income. There are quite a lot of opinions and judgments regarding the interpretation of this concept. Quite often, net income is defined as revenue, taking into account the subtraction of all expenses from it. But in this case, it will already be a profit.

In fact, this indicator is often confused with income, but in practice these are different concepts, and profit is just the end result of the enterprise. It is calculated as income, from which all expenses and mandatory payments have been deducted. In this case, we mean net profit.

What then is net income? These are all monetary or material receipts, with the exception of some obligatory payments (value added tax, excise duty), as well as other deductions fromincome. This sequence of calculation can be seen in the Statement of Financial Performance. And where, if not there, to look for the answer to the question of the formation of income and profits?

Let's consider these concepts with an example.

Let's say the company sold goods for the amount of X, which will be its income. This is the first category. When the company deducts VAT from this amount, we will get Y, that is, net income. But when we subtract the cost price (this, by the way, will be gross profit), labor costs, delivery, transportation, maintenance of administrative personnel, depreciation, income tax and other costs, we will get a net profit. In fact, this is the amount of funds that can be disposed of, and from which nothing needs to be deducted. But if the waste exceeds the income, it will be a loss.

This algorithm concerns financial accounting. In the tax system, things look a little different. Due to the fact that in it income is any cash receipt to the account, and in the financial accounting system - according to the first event. That is, if the product is shipped, then its sales value is displayed as income received, even if the buyer has not yet paid for the order. And if an advance payment for the goods was made to the company's account, but the latter has not yet been shipped, then the date of transfer of funds will be taken into account as income.

If we talk about individuals, namely people who are not entrepreneurs, then income is the totality of all cash receipts (wages, additional jobs,gifts, etc.). If we subtract the deductions in the form of taxes and social funds from this amount, we will get a net income. And when we subtract the cost of food, transport, clothes, etc. from this indicator, then there will be (if you're lucky) a profit that can be set aside to receive additional income in the form of interest.