You need to know what income and expenses are in accounting to do a more effective job in your company or business. Well, in this article we will talk about what is expense and income in accounting as well as other elements that compose it.
What is income in financial accounting?
In accounting, financial income are some results of profitability from the procedures in financial activities in a company or institution. This represents or reflects an amount in favor of a specific activity carried out in an investment of a budgeted capital. Undoubtedly, this flow and amount of this income is largely supported by an effective financial management of a company or company.
financial sources
The financial collection comes from the use of cash and group of assets with a degree of liquidity, here we mention some sources of income.
- Currency ownership or purchase.
- Refunds on purchases for prompt payments.
- Bond Holding.
- Interest on loans granted by the company.
- Financing in shares.
- Fixed income holder.
As a summary, these incomes are those that enter a company due to its commercial and financial operations.
Financial income accounts
Financial income is recorded individually in different accounts, below we show you which are those accounts in the company.
- Collection for participation in capital.
- Positive spreads on foreign exchange.
- Earnings from securities.
- Credit income.
- Other income earned by the company.
- Income from rental values.
We want to emphasize that financial accounting takes into account that revenues must be recorded at the time they are received and not when they are collected.
What are expenses in financial accounting?
Financial expenses are those that emanate from the provision of financing of any financial debt in a company. A very common financial expense is interest paid on debts, this allows the lender to acquire an interest or benefit, which is reflected mostly in percentage. In accounting, expenses are a fundamental part of the accounting report, so expenses are minimized from the company’s current income.
Types of financial expenses
In this aspect, there are usually many financial expenses, here we will use a categorization that has been determined by the General Accounting Plan of Spain.
- Deficit in divisions and values characteristic of debt.
- Non-commercial loan deficit.
- Losses due to negative inequalities of change.
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General expenses for enhancement of material.
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Deficit of financial asset expenses.
- Interest for factoring discount.
- Loss due to dividends of shares studied as commercial liabilities.
- Interest on debts.
- Interest on debentures and bonds.
Income Statement- Financial Expenses
In all financial expenses there is an income statement scheme, below we will show you what this structure is, so let’s get to it.
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Net income or sales: This includes the direct cost expenses of the goods negotiated or sold.
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Gross Margin: General expenses such as personnel and administrative expenses are found.
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EBITDA financial indicator: In this section we have the amortization and material expenses.
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Earnings before interest and taxes: This includes extraordinary positive income and special expenses.
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Ordinary result: Here we can find the financial income and financial expenses.
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Pre-tax benefits: Corporation taxes.
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Net profit or the result of the exercise.
On the other hand, the companies that carry out this tabulation can add some other intermediary factors, for example if there have been interruptions together with the benefit of tax discounts. These types of activities mean “continuing operations” which, when added to discontinued operations, reflect a net profit.
We have concluded, we hope that this article will be of great help to you, and we suggest you not stop looking for the links that we have left you.