Define Income

Previous lesson: Define Profit
Next lesson: Accrued Income - Part 1

I am not even going to mention the official definition of income. Look it up in an official-looking accounting book if you so choose.

Let's define income in simple terms:

Income is simply the event that results in money flowing into the business.

Examples of income:

  • Sales
  • Services rendered (such as an accountant’s services, doctor’s services, a plumber’s services, etc.)
  • Interest received
  • Rent received

Each one of these things above represent some sort of event that occurs (like a sale being made), which results in money flowing into a business.

Income = Profit = Owner's Equity

More income means more profit, which means more for the owner. Income thus comes into being (and increases) on the same side as equity – namely the right side.

Okay, let's return to George's Catering and see how George deals with income.

This is what George’s Catering looked like after our last transaction:

e) Now George’s Catering provides catering services for a wedding. George gets $10,500 from this job in cash. What happens to our accounting equation?

Income means Equity

Well, assets go up (on the left), because we have received $10,500 cash. That’s the simple part.

The catering services itself is income, as it is an event that results in money flowing into the business.

The business has thus made income, and this is worth $10,500. Income increases on the right (the same side as the owner’s equity) and causes the owner’s equity to increase by $10,500. The owner now has a stake of $25,000 of the total assets of $30,000. Once again, the external parties’ stake (liabilities) will be the same as it was before this transaction ($5,000).

So, as you can see, income results in more assets, and in the owner having a greater share in the assets.

Return from Define income to Basic Accounting Transactions

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Previous lesson: Define Profit
Next lesson: Accrued Income - part 1

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Questions Relating to This Lesson

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Current Income of Mr. George
My question is about the stake of George. Where is the $25,000 US coming from? Because if we add up the equity which was $15,000 US plus the income received …


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