Income
15037
225709983
2008-07-15T00:50:07Z
Arthur Rubin
374195
Reverted edits by [[Special:Contributions/63.197.50.90|63.197.50.90]] ([[User talk:63.197.50.90|talk]]) to last version by Buddha24
'''Income''', refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms.<ref name="Barr"/> However, 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."<ref name="Case & Fair">Case, K. & Fair, R. (2007). ''Principles of Economics''. Upper Saddle River, NJ: Pearson Education. p. 54.</ref> For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted.<ref>{{cite web|accessdate=2008-03-14|url=http://www.msnbc.msn.com/id/7477449/|title=What's the difference between revenue and income? |publisher=[[msnbc]]|author=Schoen, John W. }}</ref> 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.<ref name="Barr"/>
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.'' [F.70] (IFRS Framework)
==Meaning in economics and use in economic theory==
In [[economics]], [http://bea.gov/bea/glossary/glossary.cfm?key_word=Factor_Income&letter=F#Factor_Income factor income] is the [[Stock and flow|flow]] (that is, measured per unit of time) of revenue accruing to a person or nation from labor services and from ownership of [[Land (economics)|land]] and [[Capital (economics)|capital]].
In [[consumer theory]] 'income' is another name for the "budget constraint," an amount <tt>Y</tt> to be spent on different goods x and y in quantities <tt>x</tt> and <tt>y</tt> at prices <tt>Px</tt> and <tt>Py</tt>. The basic equation for this is
: <tt>Y = Px • x + Py • y</tt>.
This equation implies two things. First buying one more unit of good x implies buying <tt>Px/Py</tt> less units of good y. So, <tt>Px/Py</tt> 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 <tt>Y</tt>, 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]]. The generalization to more than two goods consists of modelling y as a [[composite good]].
The theoretical generalization to more than one period is a multi-period [[wealth (economics)|wealth]] and income constraint. 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]].
== Income inequality ==
[[Income inequality]] refers to the extent to which income is distributed in an uneven manner. Within a society can be measured by various methods, including the [[Lorenz curve]] and the [[Gini coefficient]]. Economists generally agree that certain amounts of inequality are necessary and desirable but that excessive inequality leads to efficiency problems and social injustice.<ref name="Barr"/>
''National income'', measured by statistics such as the [[Net National Income]] (NNI), measures the total income of individuals, corporations, and government in the economy. For more information see [[measures of national income and output]].
== Income in Philosophy and Ethics ==
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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 M. Friedman|Benjamin Friedman]] in his well-acclaimed recent book ''The Moral Consequences of Economic Growth''.
==Meaning within U.S. accountancy==
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In [[United States|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.
Net income is also called 'net profit'. It is calculated as follows:
1. The gross income or gross revenue is tabulated.</br>
2. Where applicable, the cost of goods sold or cost of operations figure is subtracted from the gross income to yield the gross profit.</br>
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".</br>
4. Taxes are then subtracted from the pre-tax net income to give a final net income or net profit (or net loss) figure.</br>
Net income or net profit which is not expended to shareholders in the form of [[dividend]]s becomes part of [[retained earnings]].
All [[public company|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. Some companies also provide a more rosy financial report of their income, with ''[[pro forma]]'' reporting, or, [[EBITDA]] reporting. ''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. 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. [[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 trust]]s, to present reports using a standard called [[FFO]], or "Funds From Operations". 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.
==Meaning for U.S. Income Tax Purposes==
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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 IRS implements and enforces the [[Internal Revenue Code]] (IRC), a set of laws passed by Congress.
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.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|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. 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... 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.<ref name="Barr"/> 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.<ref name="Barr">Barr, N. (2004). Problems and definition of measurement. In ''Economics of the welfare state''. New York: Oxford University Press. pp. 121-124</ref>
== See also ==
{{Wiktionarypar|income}}
*[[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==
{{reflist}}
*D. Usher (1987). "real income," ''The [[New Palgrave: A Dictionary of Economics]]'', v. 4, pp. 104-05
== External links ==
*[http://money.cnn.com/markets/IRC/warnings.html Markets & Stocks: Investor Research Center - Earnings Warnings]
[[Category:Generally Accepted Accounting Principles]]
[[Category:Income| ]]
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