Income, refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. ^[1] Usage of the term may, however, be somewhat ambiguous. For households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received. . . in a given period of time. "^[2] For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted. ^[3] In the field of public economics, it may refer to the accumulation of both monetary and non-montary consumption ability, the former being used as a proxy for total income. Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities ^[1]

The International Accounting Standards Board uses this definition:

Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. The International Accounting Standards Board (IASB founded on April 1 2001 is the successor of the International Accounting Standards Committee (IASC founded in June [F. 70] (IFRS Framework)

Contents 1 Meaning in economics and use in economic theory 2 Income inequality 3 Income in Philosophy and Ethics 4 Meaning within U.S. accountancy 5 Meaning for U.S. Income Tax Purposes 6 Full and Haig-Simmons income 7 See also 8 References 9 External links

Meaning in economics and use in economic theory

In economics, factor income is the flow (that is, measured per unit of time) of revenue accruing to a person or nation from labor services and from ownership of land and capital. Economics is the social science that studies the production distribution, and consumption of goods and services. business Accounting, and related fields often distinguish between quantities which are stocks and those which are flows. Land in Economics comprises all naturally occurring resources whose supply is inherently fixed (i In Economics, capital or capital Goods or real capital refers to items of extensive value

In consumer theory 'income' is another name for the "budget constraint," an amount Y to be spent on different goods x and y in quantities x and y at prices Px and Py. Consumer theory is a theory of Microeconomics that relates Preferences to consumer demand curves. The basic equation for this is

Y = Px • x + Py • y.

This equation implies two things. First buying one more unit of good x implies buying Px/Py less units of good y. So, Px/Py is the relative price of a unit of x as to the number of units given up in y. Second, if the price of x falls for a fixed Y, then its relative price falls. The usual hypothesis is that the quantity demanded of x would increase at the lower price, the law of demand. Supply and demand is an Economic model describing effects on price and quantity in a Market. The generalization to more than two goods consists of modelling y as a composite good. In Economics, demand for a good is often the focus as to a change in its price

The theoretical generalization to more than one period is a multi-period wealth and income constraint. In Economics and Business, Wealth of a person or nation is the value of Assets owned net of liabilities owed (to foreigners in the For example the same person can gain more productive skills or acquire more productive income-earning assets to earn a higher income. In the multiperiod case, something might also happen to the economy beyond the control of the individual to reduce (or increase) the flow of income. Changing measured income and its relation to consumption over time might be modeled accordingly, such as in the permanent income hypothesis. The permanent income hypothesis (PIH is a theory of consumption that was developed by the American Economist Milton Friedman.

Income inequality

Income inequality refers to the extent to which income is distributed in an uneven manner. Economic inequality refers to disparities in the distribution of Economic Assets and Income. Within a society can be measured by various methods, including the Lorenz curve and the Gini coefficient. The Lorenz curve is a graphical representation of the Cumulative distribution function of a Probability distribution; it is a graph showing the proportion The Gini coefficient is a measure of statistical dispersion most prominently used as a measure of inequality of income distribution or inequality of wealth Economists generally agree that certain amounts of inequality are necessary and desirable but that excessive inequality leads to efficiency problems and social injustice. ^[1]

National income, measured by statistics such as the Net National Income (NNI), measures the total income of individuals, corporations, and government in the economy. Net National Income (NNI is an Economics term used in National income accounting For more information see measures of national income and output.

Income in Philosophy and Ethics

Throughout history, many scholars have written about the impact of income growth on morality and society. In particular, a number of scholars have come to the conclusion that material progress and prosperity, as manifested in continuous income growth at both individual and national level, provide the indispensable foundation for sustaining any kind of morality. This argument was explicitly given by Adam Smith in his Theory of Moral Sentiments, and has more recently been developed in depth by Harvard economist Benjamin Friedman in his well-acclaimed recent book The Moral Consequences of Economic Growth. Adam Smith ( baptised 16 June 1723 – 17 July 1790) was a Scottish moral philosopher and a pioneer of Political economy. Benjamin Morton Friedman, a leading American political economist, is the William Joseph Maier Professor of Political Economy at Harvard University.

Meaning within U. S. accountancy

In U.S. business and financial accounting, the term 'income' is also synonymous with revenue; however, many people use it as shorthand for net income, which is the amount of money that a company earns after covering all of its costs. The United States of America —commonly referred to as the Accountancy or accounting is the measurement statement or provision of assurance about financial information primarily used by Lenders managers, In business revenue or revenues is Income that a company receives from its normal business activities usually from the sale of goods and services

Net income is also called 'net profit'. It is calculated as follows:

1. The gross income or gross revenue is tabulated.
2. Where applicable, the cost of goods sold or cost of operations figure is subtracted from the gross income to yield the gross profit.
3. All expenses other the COGS or COO are subsequently subtracted from the gross profit to yield the net profit or net income - or, if a negative number, the net loss (usually written in parentheses). More commonly, this is called "Net Income (or Loss) Before Taxes".
4. Taxes are then subtracted from the pre-tax net income to give a final net income or net profit (or net loss) figure.

Net income or net profit which is not expended to shareholders in the form of dividends becomes part of retained earnings. Dividends are payments made by a Corporation to its Shareholder members In Accounting, retained earnings refers to the portion of Net income which is retained by the corporation rather than distributed to its owners as Dividends

All public companies are required to provide financial statements on a quarterly basis, and the income statement of income is one of the most important of these. A public company usually refers to a company that is permitted to offer its registered securities ( Stock, bonds, etc Financial statements (or financial reports) are formal records of a business' financial Some companies also provide a more rosy financial report of their income, with pro forma reporting, or, EBITDA reporting. The term pro forma ( Latin "as a matter of form" is a term applied to practices that are perfunctory, or seek to satisfy the minimum requirements Earnings before interest taxes depreciation and amortization (EBITDA is a non- GAAP metric that can be used to evaluate a company's profitability Pro forma income is an estimate of how much the company would have earned without including the negative effect of exceptional "one-time events", supposedly in order to show investors how much money the company would have made under normal circumstances if these exceptional, one-time events had not occurred. Critics charge that, in most cases, the "one-time events" are normal business events, such as an acquisition of another company or a write off of a cancelled project or division, and that pro forma reporting is an attempt to mislead investors by painting a rosy financial picture. The term write-off (or write-down describes a reduction in recognized value Besides that, when discussing results with analysts and shareholders, CEOs and CFOs have a tendency to do even more "hypothetical accounting". EBITDA stands for "earnings before interest, taxes, depreciation, and amortisation", and is also criticised for being an attempt to mislead investors. Earnings before interest taxes depreciation and amortization (EBITDA is a non- GAAP metric that can be used to evaluate a company's profitability Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Depreciation is a term used in Accounting, Economics and Finance to spread the cost of an Asset over the span of several years Warren Buffett has criticised EBITDA reporting, famously asking, "Does management think the tooth fairy pays for capital expenditures?"

It is common for some other companies, such as real estate investment trusts, to present reports using a standard called FFO, or "Funds From Operations". Warren Buffett (born August 30 1930 is an American Investor, Businessman, and Philanthropist. For other uses see Tooth Fairy (disambiguation. The tooth fairy is the concept of a Fairy which gives a child a gift in exchange for a Tooth Capital expenditures (CAPEX or capex are expenditures creating future benefits A Real Estate Investment Trust or REIT (ˈriːt is a Tax designation for a corporation investing in Real estate that reduces or eliminates Corporate SpecialShortpages.-->Definition Funds From Operations A financial measure Like EBITDA reporting, FFO ignores depreciation and amortization. This is widely accepted in the industry, as real estate values tend to increase rather than decrease over time, and many data sites report earnings per share data using FFO. Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom Earnings per share (EPS are the earnings returned on the initial investment amount

Meaning for U. S. Income Tax Purposes

For the average citizen in many countries, the term “income” is most relevant for its role in determining how much income tax a person must pay. In the United States, the Internal Revenue Service (IRS) is the executive agency in charge of collecting income taxes. The The IRS implements and enforces the Internal Revenue Code (IRC), a set of laws passed by Congress. The Internal Revenue Code (or IRC; more formally the Internal Revenue Code of 1986 as amended) is the main body of domestic statutory Tax law

For the purpose of taxing income under the IRC, the IRS relies on the definition of income provided in a 1955 U. S. Supreme Court case called Commissioner v. Glenshaw Glass Co., 348 U. Commissioner v Glenshaw Glass Co, 348 US 426 ( 1955) was a case in which the United States Supreme Court held that Congress, in S. 426 (1955). According to this case, taxpayers have “income” when they experience "instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion. " This means that a taxpayer has income for income tax purposes when he receives something of value (including money, property, securities, or anything else), the transfer is complete, and the taxpayer can control the thing of value.

This definition is helpful for a taxpayer trying to decide what constitutes income. However, there is another way of looking at income for income tax purposes. “Income” is a concept Congress has seized upon for allocating how much tax each member of society will pay. The system seeks to tax individuals in a way that is fair, or at least in a way that appears to be fair. By claiming to assign tax burdens according to how much “income” a person has, the system purports to tax all taxpayers evenly.

Full and Haig-Simmons income

Main article: Haig-Simons income

Full income refers to the accumulation of both, monetary and non-monetary consumption ability of any given entity, such a person or household. Haig-Simons income or Schanz-Haig-Simons income is a measure of economic income that was developed by German legal scholar Georg von Schanz. According to the what economist Nicholas Barr describes as the "classical definition of income:" the 1938 Haig-Simmons definition, "income may be defined as the. Nicholar Barr is a British Economist, currently serving as Professor of Public economics at the London School of Economics (LSE . . sum of (1) the market value of rights excerised in consumption and (2) the change in the value of the store of property rights. . . " Since the consumption potential of non-monetary goods, such as leisure, cannot be measured, monteray income may be thought of as a proxy for full income. ^[1] As such, however, it is criticized for being unreliable, i. e. failing to accurately reflect affluence and that is consumption opportunities of any given agent. It omits the utility a person may derive from non-montary income and, on a macroeconomic level, fails to accurately chart social welfare. According Barr, "in practice money income as a proportion of total income varies widely and unsystematically. Non-observability of full-income prevent a complete characterization of the individual opportunity set, forcing us to use the unreliable yardstick of money income. " On the macro-economic level, national per-capita income, increases with the consumption of activities that produce harm and omits many variables of societal health. ^[1]

See also

• Comprehensive income
• Distribution (economics)
• Income statement
• Income tax
• Income trust
• Income inequality metrics
• Per capita
• Per capita income
• Poverty line
• Private income
• Profit
• Remuneration
• Six figure income
• Wealth (economics)
• Residual income
• Passive income

References

• D. Usher (1987). "real income," The New Palgrave: A Dictionary of Economics, v. The New Palgrave A Dictionary of Economics (1987 is a 4-volume reference edited by John Eatwell, Murray Milgate and Peter Newman 4, pp. 104-05

External links

• Markets & Stocks: Investor Research Center - Earnings Warnings

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