What are Income and Expenses in Financial Accounting and how are they classified?

You need to know what are income and expenses in accounting to do more effective work in your company or business. Well, in this article we will talk about what is expense and income in accounting as other elements that compose it.

What is income in financial accounting?

In accounting financial income are some profitability results from the procedures in financial activities in a company or institution. This represents or reflects an amount in favor of a specific activity performed on a budgeted capital investment. Undoubtedly, this flow and amount of this income is largely supported by effective financial management of a company or company.

Financial sources

Financial collection comes from the use of cash and group of assets with a degree of liquidity, here are some sources of income.

  • Ownership or purchase of currency.
  • 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 income 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 in foreign exchange.
  • Earnings from securities.
  • Credit income.
  • Other income earned by the company.
  • Income from rental values.

accounting record of income

We want to emphasize that in financial accounting it takes into account that income 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 mostly reflected as a percentage. In accounting, expenses are a fundamental part of the accounting report, so expenses are minimized from the company’s current result.

Types of financial expenses

In this aspect, there are usually many financial expenses, here we will use a categorization that has determined the General Accounting Plan of Spain.

  • Deficit in divisions and values ​​characteristic of debt.
  • Non-commercial loan deficit.
  • Losses due to negative exchange inequalities.
  • General expenses for material enhancement.
  • Financial asset expense deficit.
  • Interest for factoring discount.
  • Loss from dividends of shares studied as commercial liabilities.
  • Interest on debts.
  • Interest on obligations 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.

  • Net income or sales: This includes the direct cost expenses of the goods traded or sold.
  • Gross margin: There are general expenses such as personnel and administrative expenses.
  • EBITDA financial indicator: In this section we have the depreciation and material expenses.
  • Profit before interest and taxes: In this you will find the extraordinary positive income and the special expenses.
  • Ordinary result: Here we can find financial income and financial expenses.
  • Pre-tax benefits: Corporation taxes.
  • Net profit or the result of the exercise.

viewing the income statement structure

On the other hand, the companies that perform this tabulation can add some other factors intermediaries, for example if there have been interruptions together with the tax discount benefit. This type of activity means “continuing operations” which, when added to discontinued operations, reflects a net profit.

We have concluded, we hope that this article will be of much help to you, and we suggest you not stop looking for the links that we have left you.

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