Cash earnings (also income) are excess of revenue earned by an entity over the costs that must be incurred to earn revenue (Begg, Vernasca, Fischer, Dornbusch 2014, p. 203 -206).
Specificity of cash earnings
Income is the combination of the cash inflows received by an entity over a specified period of time and the costs necessary to earn those inflows. Individuals' cash earnings can nowadays be understood as a stream flowing from a variety of sources of goods and services (so-called income in kind) and amounts of cash (so-called monetary income) (Begg, Vernasca, Fischer, Dornbusch 2014, p. 203 -206). Income is earned as a result of the production of goods and services, non-refundable transfers (pensions, annuities), and the provision of gainful employment. It may also come from capital or assets and other activities.
Cash earnings theories
According to Begg, Vernasca, Fischer S., Dornbusch, when dealing with the concept of income, the source of income must be taken into account first and foremost. There must be something that brings income. Income is inextricably linked to the notion of the factor from which income flows (Begg, Vernasca, Fischer, Dornbusch 2014, p. 203 -206). The notion of income is also connected with the notion of income stability. And here it should be noted that in the opinion of this author, if we obtain a one-off surplus of income over the cost of obtaining it, we are dealing not with income, but with profit. On the other hand, in order to talk about income, the surpluses obtained must result from a fixed source. Following this trail of income is not everything that comes from such sources as donations, inheritances, sale of assets, or other occasional income that is not related to the proper activity generating income (Begg, Vernasca, Fischer, Dornbusch 2014, p. 203 -206).
Consumption fund theory
Different theories of the understanding of cash earnings can be divided into two main groups. A narrower group for defining income is the so-called consumption fund theory. According to this theory, income is the income that can be used by a person who is in a certain period of time and without depletion of his or her assets (Fulmer, Finch, Smythe, Payne,2002 p. 14-19).
A broader theory of accepting cash earning as pure property growth
The second group of defining income consists of a broader theory of accepting income as pure property growth. According to this theory, income is a pure increase in property, achieved in a certain period of time. Then all pure income, uses, the value of third parties, legates, inheritances, donations, compensations, benefits, and lottery winnings are included in the income (Besanko 2012, p. 8-9) . Income is a major obstacle to our ability to meet our needs. It is like a barrier that sets a limit to what we can afford to meet our needs. Income determines the maximum expenditure we can incur on the purchase of goods and services. As our income grows, we can afford to meet our needs more broadly (Besanko 2012, p. 8-9).
The phenomenon of income is closely related to income tax and the period in which the income is earned, as income is the taxable base. Actual income can only be determined after the end of the period in which it is earned, which is usually the marketing year. In this state of affairs, the precise definition of the concept of income and the rules for determining it become even more important (Osgood, 2004, p. 4-7). Against the background of this reasoning, numerous discrepancies have arisen, e.g. whether the income to be taxed is the resources obtained or those consumed or assimilated (e.g. savings), in other words, a question has been asked whether the income is to be taxed at the moment of its creation or during its spending (Osgood, 2004, p. 4-7). It has been assumed that the tax base is income at the time of its creation, i.e. the income is the resultant of income and costs of obtaining it. There are doubts related to the scope and catalogue of costs that are related to obtaining revenues (deducted from tax) and costs that cannot be deducted as tax deductible costs (Osgood, 2004, p. 4-7). In modern tax systems, only the monetary form of income has been abandoned. The nature of income has also been extended to include the concept of potential cash earnings (Fulmer, Finch, Smythe, Payne,2002 p. 14-19). This satisfaction can go two ways (Boex 2015 p. 2-4):
- the first is to buy more individual goods,
- replacing goods of worse quality, but cheap, with goods of better quality, better meeting our needs, but more expensive, i.e. those which we could not afford to buy on a lower income. All added value is someone's income.
Measurements of cash earnings
In national accounting there are different measures of income. National income is GDP less depreciation and sales taxes and excise duties and adjusted for net factor ownership payments. Personal income is national income less social security contributions and undistributed profits of joint-stock companies, plus transfer payments and interest paid to consumers by the state. disposable income is personal income after deduction of income tax(Hall, Taylor 2000, p. 69).
- Begg D., Vernasca G.,(2006), Solutions to Problems, Microeconomics p. 203-206.
- Boex A., (2015), Cover the gap between received and payable,Why cash flow is more important than profit, p. 5-6
- Fulmer, J. G.,(2002). Growing sales and losing cash: Assisting your small-business customer with cash flow management, p. 14-19.
- Glassman, J. K. (2012), Why lenders look at cash flow,Go With the Cash Flow, p. 16-18.
- Osgood, W. R. (2004), Strategic Management Learning,Common Sense Cash Flow Management, p. 69.
Author: Natalia Jaskot