Income reflects economic benefits in the form of increases in assets or decreases in liabilities during an accounting period that result in increases in equity, excluding economic benefits contributed by equity participants.  It encompasses both revenue and gains.

The gross inflow of economic benefits to an enterprise during an accounting period in the course of its ordinary business activities is revenue.  Revenues are recognized as earned when a business has essentially done what it is required to do in order to be entitled to the benefits of the revenues.  “Sales”, “rent”, “fees”, “dividends”, “interest” and “royalties” are different names used to refer to revenue.

Revenue = Sales, Rent, Fees, Dividends, Interest, Royalties, etc.

A gain is the inflow of economic benefits to an entity during an accounting period as a result of transactions and circumstances that do not involve the earnings process (i.e., not through its ordinary business activities) and that may be beyond the entity’s control.  Gains may be classified according to sources or as operating and nonoperating and are no different in nature from revenue.

Income is shown in the multiple-step income statement in intermediate balances according to where it occurs in the process of generating profit:

  • Net sales;
  • Gross profit;
  • Operating profit;
  • Other income;
  • Net income before taxes; and
  • Net income.

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