Expenses and income are the same

Income and expenditure

Every company has income and expenses that have an impact on bookkeeping and accounting and must be recorded. Simply put, income includes the addition of company financial assets and expenses include the disposal of company financial assets.
However, these terms are often mistakenly equated or confused with deposits and withdrawals or income and expenses, which can lead to some confusion in bookkeeping.
It is therefore important to examine the clear demarcation of the terms income and expenditure in more detail.

What are earnings?

Operating income comprises three items: incoming payments, additions to short-term receivables and disposals of short-term liabilities. Income also does not mean that the financial assets (cash holdings or account balances) have to increase. For example, if a company sells its goods on account, the financial assets do not increase, but a receivable arises. So the income does not automatically mean that the financial assets increase immediately.

Income is often equated with income - and although both terms are closely related, there is a fundamental difference: an income only becomes income when all expenses have been deducted from it.
According to the Income Tax Act (Section 2, Paragraph 1, Sentence 1, No. 1 - 7 EStG), seven different forms of income apply:

  • Business income
  • Income from capital
  • Rental and leasing income
  • Income from agriculture and forestry
  • Income from self-employed work
  • Income from non-self-employed work
  • Other Income

As a rule of thumb, the following can be stated: Deposits cause an actual and thus positive change in the cash balance or bank balance, while in the case of income, the liabilities and receivables are also included.

What are expenses?

Operating expenses include payments, disposals of short-term receivables and additions to short-term liabilities. Payouts are not to be confused or equated with expenses.
As with deposits and receipts, a simple distinction can also be made between withdrawals and issues. While only a reduction in liquid funds (bank account or cash) is posted when paying out, the issue also includes an increase in liabilities and the disposal of receivables.

Operating income and expenses

In order to be able to create an income-surplus-account (EÜR) within the scope of the simple bookkeeping, you have to deduct all expenses from all income. This shows the company's success: if there is a positive result, has the company made a profit, if it is negative, there have been losses.
The operating income includes, among other things:

  • Operating income (general / reduced tax rate)
  • Sale of material goods
  • Sales tax-free operating income
  • Sales tax collected
  • Release of reserves

The operating expenses include:

  • Employee wages and salaries
  • Purchased services in net
  • Purchases of goods (net)
  • Deductible input tax
  • Rent for business premises
  • Car costs
  • Energy costs
  • Expenses for low-value assets
  • Sales tax for the tax office
  • Limited deductible business expenses

Income and expenses in tax law

Part of the confusion around the terms income, expenditure, deposit and payment is certainly due to tax law. Because here self-employed, who are not subject to accounting obligations due to the regulations, have to list their income in the income surplus calculation.
In this area, however, the terms "operating income" and "operating expenses" refer exclusively to actual payments and payments, without including receivables and liabilities.

Examples of income, deposit, expenditure and expenditure, disbursement and income

  • The sale of goods on account is an income (accounts receivable increases), but not a deposit
  • The purchase of goods on account is not a payment, but an issue, since the liabilities increase, but the liquid funds do not decrease
  • Interest income from securities investments that are transferred to the business account are simultaneously income, deposit and income
  • Interest on arrears (for example, for a supplier invoice that has been paid too late), which is transferred to a company account, is expenditure, payment and expense at the same time
  • The acquisition of fixed assets is an expense, but not an expense, since the financial assets decrease, but at the same time the tangible assets increase

Create income and expenses with online accounting software?

While until a few years ago all income and expenses had to be entered manually in books or entered into cumbersome Excel files, today this can be done online in just a few steps with the help of online accounting software. The ready-made masks guide you step by step through the processes that are required in order to present you with a clear list and comparison of income and expenses at the end.

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