Definition:

Accounting income is the net profit or loss of a business as reported on its income statement. It’s calculated by subtracting total expenses from total revenues.

Key components of accounting income:

  • Revenues: These are the inflows of assets or settlements of liabilities from delivering goods or services.
  • Expenses: These are the outflows of assets or incurrences of liabilities in the process of generating revenue.

Why is accounting income important?

  • Financial performance: It measures a company’s profitability and overall financial health.
  • Investment decisions: Investors use accounting income to assess a company’s investment potential.
  • Taxation: Accounting income is often used as the basis for calculating taxable income.
  • Management decisions: It provides information for making decisions about operations, investments, and financing.

It’s important to note that accounting income may not always reflect a company’s true economic performance due to factors such as accrual accounting and estimates. However, it remains a crucial metric for understanding a company’s financial situation.