Definition of Income:
The most important and possibly the only source of revenue for most businesses is the income derived from the sale of goods or services. However a business might have other sources of income which may include:
Examples and Sources of Income:
(1) Rent receivable from renting out the business premises when business owns property in excess of its own requirements.
(2) Commission receivable from selling other people’s goods or rendering services to others.
(3) Interest receivable from bank balances.
(4) Profit on sale of non-current assets.
Definition of Expense:
Expenses are costs of doing the business as all businesses have to make payments for a number of benefits and services they receive. In other words, expenses are incurred when the assets of a business are used to acquire goods and services which are needed by a business to produce revenue. They do not have a lasting benefit for the business.
Examples of Expenses:
There may be a great number of expenses depending on the type of organization, some examples include:
(1) Cost of the goods sold during the ordinary course of business.
(2) Wages and salaries, repairs and maintenance, rent and rates, heating and lighting, telephone, insurance, etc.
(3) Commission payable, interest payable, bank charges, etc.
(4) Loss on sale of non-current assets, etc.
Wages expense is normally shown in the income statement after gross profit is calculated. In very few cases, when a trader incurs wages expense for minor alteration in the goods to convert them into selling then wages might reasonably be shown before gross profit as part of cost of sales.
Care should be taken for some confusing items like rent, commission, interest, etc., which may be received or paid by the organization. It is usual to label rental income as rent receivable, commission income as commission receivable, and so on. Similarly, rent payable and commission payable may be used for rental expense and commission expense respectively.