Characteristics of Income

Characteristics of Income

Characteristic of income can be explained in terms of gross flow of economic benefit, increase in the equity etc. Income can be defined as gross inflow of economic benefit which would increase the equity other than contribution of equity holders.

Important Characteristics of income

Some important characteristics of income have been briefly explained below.

1.   Gross Inflow of Economic Benefit:

Gross inflow of economic benefit is first important characteristics of Income. Important example of income is revenue or sales in the trading business. Gross inflow does not take into account the related expenses necessary to generate the income.

2.   Increase the Equity:

Another important characteristic of income is increase in the equity. Technically net income or profit is going to increase the equity in accounting. Thus we can say that equity of company increases by increase in net income.

Sales would increase the equity, and expenses would reduce the equity. Thus technically statement is true that income would increase the equity, however, in accounting we reduce the equity by net income. 

3.   Contribution of Shareholder:

Contribution of equity holder or Share holder is not income; rather it is investment in the business. Therefore Contribution by the shareholder is directly treated in equity account.

4.   Recognition of income:

Income must be recognized, when it would satisfy the following conditions.

a.    Qualify the definition of income.

b.    The amount of income can be measured reliably.

c.    It is probable the economic benefit will flow to organization.

International accounting standards more specifically define  recognition criteria for different incomes like sale of goods, dividend income. However, above mentioned conditions are applicable in each case.

5.   Gross Income & Net income:

Income can broadly be classified into gross income and net income. Gross income is gross inflow of economic benefit, while net income is net inflow of economic benefit. Gross income does not take into account any expanses, while net income is calculated by deducting the related expenses.

6.   Important Types of Income

Some important examples of incomes are listed below

a.    Revenue Income.

b.    Interest on deposit Income.

c.    Royalties Income.

d.    Dividend Income

e.    Rental income.

7.   List of important Characteristic of Income

Some important characteristics of income are listed below

a.    Income is gross flow of economic benefit.

b.    Income reduces the equity of the company.

c.    Shareholder contribution is not income.