Category

2.4. Income & Expense Accounting

Theory

00:00 What is income and expense accounting;
00:39 Understanding income & expenses;
01:30 What is income;
02:02 What is an expense;
02:37 How to classify revenue and costs;
03:20 Income and expense overview.

Key Terms & Definitions

Income — Any increase in economic benefits during a period that raises equity (excluding owner contributions). Includes both revenues and gains.

Expenses — Any decrease in economic benefits during a period that reduces equity (excluding owner distributions). Includes costs like salaries, rent, depreciation, and utilities.

Revenue — Income earned from the business’s primary operations, such as sales or service fees.

Gains — Income from non-core activities, such as investment returns, royalties, or asset revaluation gains.

Income Statement (Profit & Loss Statement) — A financial report that summarizes all income and expenses to show profit or loss for a reporting period.

Accrual Accounting — A method requiring income and expenses to be recorded when earned or incurred, not when cash is received or paid.

Matching Principle — Ensures expenses are recognized in the same period as the income they helped generate.

IFRS 18 Classification Categories:

  • Operating Activities — Core business activities, such as sales revenue, production costs, salaries, and general operating expenses.
  • Investing Activities — Transactions related to buying or selling long-term assets, including gains or losses from disposal.
  • Financing Activities — Transactions involving debt or equity, such as interest expense, loan proceeds, or dividend payments.