Difference between Income Revenue and Gains
Difference between income revenue and gains should be well understood by the accountants. The Conceptual Framework defines INCOME as “increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.”
This definition of income is linked to the definitions of assets and liabilities. The definition is wide in its scope, in that income in the form of inflows or enhancements of assets can arise from the provision of goods or services, the investment in or lending to another entity, the holding and disposing of assets, and the receipt of contributions such as grants and donations. To qualify as income, the inflows or enhancements of assets must have the effect of increasing the equity, excluding capital contributions by owners.
Income can exist as well through a reduction in liabilities that increase the entity’s equity. An example of a liability reduction is if a liability of the entity is ‘forgiven’. Income arises as a result of that forgiveness, unless the forgiveness of the debt constitutes a contribution by equity holders.
Under the current Framework, income encompasses both revenue and gains. A more complete definition of revenue arises in accounting standard IAS 18 REVENUE as follows: “the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.”
Revenue therefore represents income which has arisen from ‘the ordinary activities of an entity’. On the other hand, gains represent income which does not necessarily arise from the ordinary activities of the entity, e.g. gains on the disposal of non-current assets or on the revaluation of marketable securities. Gains are usually disclosed in the income statement net of any related expenses, whereas revenues are reported at a gross amount.
Another difference between income revenue and gains is that Revenues arise from the “ordinary activities” of the entity and gains may or may not be from ordinary activities. What “ordinary activities” means in any particular context is unclear; hence the distinction between revenues and gains is unclear. For further information on the difference between income revenue and gains, please visit here.
