Definition
Income refers to the monetary gain or value received by an individual or entity over a specific period. It can arise from various sources such as wages, investments, business profits, and other forms of revenue. Income is a foundational concept in economics, accounting, and finance, carrying significant implications for taxation and financial reporting.
Examples
- Salary: An employee’s monthly earnings from their employer.
- Investment Returns: Dividends received from stock investments or interest from bonds.
- Business Revenue: Total receipts from sales of goods or services over a period in a business.
- Rental Income: Money earned from renting out property or real estate to tenants.
Frequently Asked Questions (FAQs)
What is the difference between gross income and net income?
- Gross Income is the total income earned before any deductions, such as taxes and expenses, while Net Income is the amount remaining after all deductions have been made.
How is taxable income calculated?
- Taxable Income is calculated by subtracting allowable deductions and exemptions from gross income. It represents the portion of income that is subject to income tax.
What constitutes earned income?
- Earned Income includes wages, salaries, tips, and other taxable employee pay. It also encompasses earnings from self-employment activities.
Are gifts considered income?
- Generally, gifts are not considered income for the recipient under tax laws. However, they might impact tax considerations for the giver if above certain limits.
How does passive income work?
- Passive Income is earned from activities in which the individual is not actively involved, such as rental income, dividends, or royalties.
Related Terms
Gross Income
The total income earned by an individual or business before any deductions or taxes.
Net Income
Income remaining after all expenses, taxes, and deductions have been subtracted from gross income.
Taxable Income
The portion of gross income that is subject to taxes after all permissible deductions and exemptions are applied.
Online Resources
Suggested Books for Further Studies
- “Principles of Accounting” by Belverd E. Needles, Marian Powers
- “Taxation for Dummies” by Eric Tyson, Margaret Atkins Munro
- “Economics: The Basics” by Tony Cleaver
- “The Intelligent Investor” by Benjamin Graham
Fundamentals of Income: Economics and Accounting Basics Quiz
### Which of the following is considered net income?
- [ ] Total revenue before expenses
- [x] Total income after all expenses and taxes
- [ ] Total income plus expenses
- [ ] Total income before taxes
> **Explanation:** Net income is the total income after all expenses, including taxes, have been deducted from gross income.
### What type of income is primarily received from employment?
- [x] Earned Income
- [ ] Passive Income
- [ ] Capital Gains
- [ ] Investment Income
> **Explanation:** Earned income is primarily received from employment and includes wages, salaries, and tips.
### Are dividends considered earned income?
- [ ] Yes, they are earned from employment.
- [x] No, they are considered investment income.
- [ ] Yes, they always qualify as earned income.
- [ ] No, they are not considered income at all.
> **Explanation:** Dividends are considered investment income as they come from investments made in stocks.
### Which term describes the total income before any deductions?
- [x] Gross Income
- [ ] Net Income
- [ ] Adjusted Income
- [ ] Taxable Income
> **Explanation:** Gross income refers to the total income before any deductions are made.
### How is taxable income determined?
- [ ] By adding expenses to gross income
- [ ] By subtracting net income from gross income
- [x] By subtracting deductions and exemptions from gross income
- [ ] By dividing expenses by gross income
> **Explanation:** Taxable income is determined by subtracting allowable deductions and exemptions from gross income.
### Passive income refers to income from:
- [ ] Active employment
- [x] Investments and rental properties
- [ ] Gifts and inheritances
- [ ] Winnings and awards
> **Explanation:** Passive income is derived from investments, rental properties, and other sources where the individual is not actively involved in earning that income.
### What is the primary characteristic of net income?
- [ ] It is before any deductions
- [x] It is after all expenses and taxes
- [ ] It excludes expenses
- [ ] It includes gross revenue
> **Explanation:** Net income is characterized by being the amount remaining after all expenses, including taxes, have been deducted from gross income.
### What type of income would you receive from renting out property?
- [x] Passive Income
- [ ] Earned Income
- [ ] Gross Income
- [ ] Net Income
> **Explanation:** Renting out property typically generates passive income as it does not require active, daily involvement from the property owner.
### How does gross income differ from net income?
- [ ] Gross income is the income after taxes and expenses.
- [x] Gross income is the total income before any deductions.
- [ ] Net income equals gross income minus expenses and taxes.
- [ ] Gross income is adjusted for deductions.
> **Explanation:** Gross income is the total income before any deductions, while net income is what remains after deducting expenses and taxes.
### Which of the following is usually not taxed?
- [x] Gifts
- [ ] Wages
- [ ] Business profits
- [ ] Interest from bonds
> **Explanation:** Generally, gifts are not considered taxable income for the recipient under most tax laws, though they might have tax implications for the giver.
Thank you for delving into the essential concept of income with our comprehensive explanation and challenging quiz questions. Keep advancing your financial knowledge!
