Characteristics of Income

Characteristics of Income

In this article, the characteristic of income has been explained. Income is the gross inflow of economic benefit, other than equity contribution, which would increase the equity.

Important Characteristics of income

Some important characteristics of income have been briefly explained below.

1.   Gross Inflow

Income is gross inflow of economic benefit like revenue.

2.   Increase the equity

Second important characteristic of income its impact on the equity. Income would increase the equity of the entity. It is important to note that income increase the equity, while expense reduces the equity. Thus it is more appropriate to say that net income would reduce the equity i.e. income minus expenses.

3.   Other the Contribution

Share holder contribution is not treated as income. It is important to note that such contribution will be directly added to equity.

4.   Recognition of income

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

a.    Satisfy the definition of income.

b.    Can be measure reliably.

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

Above condition are general conditions for income or revenue recognition. However, IAS specifies specific condition/circumstance for revenue recognition from different industries like construction contracts, sales of goods, interest etc.

5.   Gross Income & Net income

There is a difference between gross income & net income. Gross income is gross inflow like revenue, while net income is net inflow calculated by deducting expenses from the gross inflow; example of net income is profit.

6.   Types of Income

a.    Revenue.

b.    Interest on deposit.

c.    Royalties.

d.    Dividend.

e.    Rental income.