Types of Income: All Definitions in Administration and Economics
An increase in financial resources provided by an organization, individual, or accounting system is called income, which is an increase in their net worth.
This term has a similar technical meaning in various fields of finance and administrative work.
The different types of income correspond to the different sources of income that businesses and households receive.
Every person or organization, whether public or private, has the potential to generate profit. Considering its nature, it is possible to distinguish different types of income in the economic sphere.
Although in most cases income is actually earned using monetary items such as money, it can also be presented in non-monetary terms. This is the case, for example, of payments-in-kind.
Comprehensive knowledge and a good classification of the different types of income allow people and organizations to develop adequate budgets and more effective financial saving, and investment strategies.
Frequency of Occurrence
According to the frequency of occurrence, types of income can be divided into the following categories:
- Recurring or ordinary income: Refers to the profits received on a regular basis over a period of time. They are usually determined by numbers that hardly change. Examples of these could be a pension, a standard salary, or the amount of membership dues for certain groups.
- Disposable income, or variable or special income: The occurrence of this income is not intentional and usually happens independently. These will cover things such as lottery winnings or property received upon the death of a family member.
Source of Profit
Depending on the source or origin of the profit, you can find different types of income:
- Active Income: Income received in response to any services rendered or goods provided. That is, they arise from the performance of economic activity. A simple example is wages.
- Passive income: They are a series of income from patrimonial elements that do not include the active investment of the previous point. An example is the rent that an owner collects when their property is rented. The same applies to intellectual or industrial property rights.
- Income from a portfolio or investment portfolio: Sometimes individuals and businesses derive a source of income from owning financial instruments or income-producing securities.
Volume of Income
Regarding its volume at a certain moment, we can find:
- Total income: The amount received by an organization or company as a result of an ordinary economic activity, i.e. When all products or services are sold.
- Marginal income: In microeconomics, this is the name given to an increase in a division’s total sales when the unit ranks higher than expected.
- Average income: A metric derived from the average value of products sold, which is total revenue divided by the total number of units sold.
Types of Income in Economics and Finance
In the economy, the income corresponds to the total earnings received by the company in their budget, whether it is public, private, or corporate. It is one of the fundamental elements of any economic valuation, monetary, or not, of the result of the consumption/profit cycle.
The presence and nature of income in a society are part of the elements that characterize social, political, and cultural relations, as they affect the quality of life and economic stability.
In addition, they can feed back into the economic cycle, creating dynamism and movement in the economic system, which usually manifests itself in growth.
In economic and financial terms, there are various subdivisions of types of income. This is indicated by a company or business’ gross, and marginal revenue, which is typically found in its annual reports and financial statements. Alternatively, another differentiating factor is the economic sector in which the company or institution operates. This means that there are private and public incomes:
- Private sector income: This will include all profits made by individuals and private companies.
- Public domain income: Collect resources owned by a public company or government. It ranges from the ordinary income of companies with state participation to certain taxes. Revenues also come from the issuance of public debt.
Types of Income in Accounting
In business accounting, revenue is viewed as an increase in a company’s net worth, either due to an increase in the value of its assets (such as an increase in profits) or a decrease in its liabilities (such as the maturity of the debt).
However, this calculation does not take into account contributions from partners and owners, as these must ultimately be returned to investors.
Generally, a distinction is made between the types of income from the sale of goods and those that arise from the rendering of services. But regardless of whether revenue is in monetary terms or not, it is included in the same calculation of consumption and profit.
Types of Income of Public Interest: Income Per Capita
Per capita income is known as an indicator defined by the income of each individual resident, their household, business, organization, etc. in relation to national income and, therefore, the quality of life and the level of consumption. It is calculated using to the following formula:
Per capita income = national income (IN) / total population (PT)
Per capita income is often used to make economic comparisons between countries or regions, thus determining how fast a country is improving compared to its neighbors or similar countries.
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