Income and expenses
Entry and exit are opposite terms in accounting. While the first represents an inflow of money, the second refers to an exit.
To understand it better, income means an increase in the assets of a natural or legal person. Instead, the expense is a reduction of it.
To report benefits in a specific period, income must exceed expenses. Otherwise, losses will be recorded. Companies analyze this in the financial statement known as the income statement.
Origin of income and expenses
The source of income, in the case of a company, usually comes from the sale of goods or the provision of services. However, another source of income is income (obtained from investments), government subsidies, among others.
Similarly, for a person, income is usually mainly the salary received for his work or activity. Likewise, you can earn interest or income on your savings and / or investments.
On the other hand, expenses can be of two types. First, expenses, which are those money outflows that are usually necessary and common, such as paying rent or services. These disbursements are characterized by not offering by themselves a future monetary return.
Second, we have investments, which are expected to generate income in a later period. We refer, for example, to the disbursement made to acquire a warehouse that allows expanding production.
Another example of investment is the acquisition of a financial asset, such as a company stock for which it is expected to receive dividends in the future.
Income and expenses versus cash flow
It is important to emphasize that an entry or exit does not necessarily imply an inflow or outflow of cash. For example, a sale made is noted as income, but perhaps it is on credit. In this case, the sale can be recorded as income because the amount of the transaction can be reliably valued and it is expected to report a profit in the future.
On the other hand, there are expenses such as depreciation that do not imply a cash outflow from the company. However, it should be considered as an expense to recognize the loss of value of the firm's fixed assets.
Given the above, it is understood why the income statement differs from the cash flow.
Public income and expenses
State revenue comes mainly from the collection of taxes from citizens. These can correspond to different events such as making a sale or generating profits.
Likewise, government expenditures are used for different purposes such as financing services (such as security, health and education) or public works. In addition, some countries have to pay off acquired debts, for example, with those who bought their sovereign bonds.Income accounts Total income