Total income is income from all activities. They include (I. Szarowska, 2014, p. 662-669):
- net revenues from the sale of products, goods and materials
- other operating income
- financial income.
Total income is the change in equity during the period as a result of transactions and other events, other than changes resulting from transactions with owners in their capacity as owners in their capacity as owners. Total comprehensive income comprises all components of profit or loss and other comprehensive income (I. Szarowska, 2014, p. 662-669). Revenue and expenses are the basic elements of the profit and loss account, which is a component of the financial statements and a supplement to the balance sheet. They are divided into operational and financial. Financial income and expenses are related to financial activities in the enterprise. They enable the observation of the effects of actions taken by the entity in the course of economic activity (I. Szarowska, 2014, p. 662-669). Revenue means an increase in gross economic benefits in a given period, of a reliably determined value, which results in an increase in equity capital, which is not an increase in equity resulting from payments made by shareholders. Cost means a reduction in economic benefits that results in a reduction in equity (I. Szarowska, 2014, p. 662-669).
Net sales revenues in total income
Net sales revenues are revenues from the sale of products, services and goods, net of VAT (V. Bizņa, et all., 2018, p. 121-123). On the other hand, the costs of production of sold products include costs related to their production, mainly they include: consumption of materials and energy, remuneration (only for employees related to production), depreciation, external services (e.g. partial processing of products by another entity), social security and other insurance. After deducting costs from income, the result on gross sales is obtained (V. Bizņa, et all., 2018, p. 121-123). The gross result on sales is then adjusted for expenses that are not directly related to the entity's main activities but are necessary for its operation. That is (E. Alemayehu, 2018, p.45-47):
- general and administrative expenses - they include mainly salaries of administrative employees, office supplies, but also, for example, costs of subscriptions to magazines, advertisements, etc., as well as costs of sales of products and services rendered by the Company, such as: - general and administrative expenses - they include mainly salaries of administrative employees, office supplies, but also, for example, costs of subscriptions to magazines, advertisements, etc.
- selling expenses - costs associated with the sale of finished goods incurred by an entity, e.g. unloading, transport, transport insurance, etc. - include mainly salaries of administrative employees, office supplies, but also, for example, costs of subscriptions to magazines, advertisements, etc. - selling expenses - costs associated with the sale of finished goods incurred by the entity, e.g. unloading, transport, transport insurance, etc. - selling expenses - include mainly salaries of administrative employees, office supplies, but also, for example, costs of subscriptions to magazines, advertisements, etc. - costs of sales of finished goods incurred by the entity, e.g. unloading, transport, transport insurance, etc. (E. Alemayehu, 2018, p.45-47).
- The result on net sales is thus obtained, i.e. the actual profit/loss on the basic activity of the unit (E. Alemayehu, 2018, p.45-47).
An entity may also receive income and incur expenses that are not related to its principal activity. A classic example of such costs may be, for example, penalties, fines, decommissioning, etc. Examples of revenue include past due liabilities and grants. When these revenues are added and costs are deducted from the net disposal result, an operating profit/loss is obtained (M. Geamanu 2011, p. 324-235). An entity may engage in financing activities. Financial income is mainly interest of all types (e.g. on bank accounts, loans granted), while costs, e.g. discount of bills of exchange, interest for late payments. After they are included in the profit and loss account, a profit/loss on economic activity is obtained (M. Geamanu 2011, p. 324-235). The next stage of determining the financial result is to take into account events that could not have been predicted, and they had an impact on the operations of the entity, such as fire, theft or compensation for losses incurred in fixed and current assets caused by random accidents (M. Geamanu 2011, p. 324-235). After the above adjustments are made, the gross profit/loss is obtained. In case of profit occurrence, it is reduced by corporate income tax (CIT), thus receiving net profit. In the case of a loss, it is left to be settled. The profit and loss account may be prepared in two ways (M. Geamanu 2011, p. 324-235):
- Comparative variant
- costing variant
They differ from each other in the manner of recognising the manufacturing costs of products incurred by the entity, which is a result of the adopted accounting records M. Geamanu 2011, p. 324-235).
Other operating income in total income
Other operating income is income indirectly related to the operating activity of the entity, and in particular income related to (K. Kočišová 2017, p.31-34):
- income from social activity;
- income from sales of fixed assets,
- fixed assets under construction,
- intangible assets, as well as from maintenance and sales of real estate and intangible assets classified as investments;
- with the write-off of past due,
- written off, uncollectible liabilities,
- except for public-law liabilities not encumbering costs;
- with the release of provisions,
- except for provisions related to financial operations;
- with write-offs updating the value of assets and their adjustments,
- except for write-offs encumbering the costs of production of products sold or goods sold, costs of sales or financial costs;
- with received compensations, penalties and fines;
- with gratuitous receipt, including by way of a donation, of assets, including cash for purposes other than the acquisition or production of fixed assets, fixed assets under construction or intangible assets (K. Kočišová 2017, p.31-34).
Financial revenues in total income
Financial revenues may be classified into several groups due to their source of recognition. These are(K. Teplická, 2015, p. 149-152):
- Income from interest, dividends and other benefits from the holding of financial assets (investments in financial assets) - especially from the holding of debt securities. They are also benefits received by an entity from bank deposits (linked to interest) or positive current account balances. Also included here:
- specific benefits, so-called ownership gains, arising from the holding of shares.
- Interest income on receivables, trade and other receivables other than those included in financial assets - this category includes interest on overdue receivables whose value is calculated on the basis of a sales invoice. Such interest should be classified as financial income according to the accrual principle, i.e. at the time of making the decision on its calculation. Also included here are financial revenues from discounts/bonus bonuses on bills of exchange.
- revenues from exchange rate differences - fluctuations in exchange rates during transactions concluded with a counterparty cause the contract value to be different (in translation from a foreign currency to Poland). This item includes foreign exchange gains that result in the recognition of financial income. They occur when, during the valuation as at the financial day of foreign currencies, the average exchange rate set by the President of the National Bank of Poland is higher than the exchange rate as at the date of purchase of that currency (K. Teplická, 2015, p. 149-152).
- revenues from making estimates in the valuation of financial assets and financial liabilities and from changes in such estimates - the case in which financial revenues also arise is the release of unused provisions for financial operations. This also includes the effects of changes in the fair value of non-financial assets, interest income accrued by the lessor (in finance lease agreements).
- revenues from the sale of investments in financial assets - this group includes revenues from the sale of financial assets determined as the surplus of the sale price and balance sheet value of the sold financial assets (K. Teplická, 2015, p. 149-152).
- Alemayehu E., (2018), Performance Determinants of Business Income Tax Collection, A Wolaita Zone, Ethiopia
- Bizņa V., (2018), Assessment of Impact of Corporate Income Tax Suspension on Financial Performance of Businesses, Economic Efficiency And Profitability, Latvia
- Geamanu M., (2011), Economic Efficiency And Profitability,Spiru Haret University, Romania
- Kočišová K., (2017), Measurement of Revenue Efficiency in European Union Countries, International Journal of Applied Business and Economic Research, Slovakia
- Szarowska I., (2014), Personal Income Taxation in a Context of a Tax Structure, Procedia Economics and Finance, Czech Republic
- Teplická K., (2015), Comparison of Methods for Pricing of the Product and its Impact on Economic Efficiency of Enterprise, Procedia Economics and Finance, Slovakia
Author: Rafal Maslyk