Accounting Assignment Help >> Income Measurement

Net Income = Revenues + Gains – Expenses - Losses

Revenue is the inflow of assets and return for the services perform and product delivered during the period and an expense is the cost incurred to generate revenue. Net profit is simply the amount by which the revenue of a particular period of time exceeds the expenses incurred to generate them.

Expenses are also recognized in the period that is benefitted regardless of when the payment is made in cash. E.g. salaries earned by employees are considered an expense for the period in which the employee works even though they may not be paid until the following period.

Thus the income measurement is the way in which revenue for the periods of time are matched with the expenses for the same period of time. If the revenue exceeds the expenses result is a net income and if vice versa it will be a net loss.

Income measurement involves the measurement of all income derived from the factors of production. It may be on cash or accrual basis.

In measuring income of the business matching concept should be kept in mind because first expenses are incurred to get the revenues out of it in the relevant period.

Under the principle of conservatism provide for all the losses but anticipate no gain so income could be measured but recognized at a time when it is expected to be realized or when it has become receivable

Income includes income generated from the core revenue producing activities or from other sources like dividends, gain on the sale of purchase of fixed assets etc.

These two sources of income have different presentation the income statement in order to calculate the net income of the business.

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