Sundry income
| Sundry income |
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Sundry income is all the income not related to normal business operations, e.g. sales of products or services. Sundry income generates income from other sources than basic business operations. Usually sundry income is less predictable and much lower than usual incomes, because the associated activities are usually irregular and they are not seen as constant and guaranteed income sources over the long term (Aoyama, H., Souma, W., Nagahara, Y., Okazaki, M. P., Takayasu, H., & Takayasu, M., 2000).
Typical sources of sundry income are (more sources below):
- late fees,
- profits on sales of assets,
- foreign exchange gains,
- interest income.
Generally sundry income has a small share in the company's entire income from operating activities. Amounts from sundry income do not have to be small. There is no limit as to the amount that can be qualified as sundry income, because it is an irregular source of income in the company. Sundry income must be shown in the balance sheet and financial statements, because it affect to the net value of the company. This is important information for current and future investors. Additionally, through sundry income the company incur tax consequences. All incomes must be reported to the Internal Revenue Service.
Sundry income accounting
In accounting, sundry income is recorded as a separate line item on a company's income statement, also known as a profit and loss statement. This allows investors and other stakeholders to see the specific sources of income and understand how they contribute to the overall financial performance of the company.
The process of accounting for sundry income is similar to any other income stream. The company will record the income when it is earned and not when it is received. They will then match the income with the expenses incurred to generate that income. The net amount is then credited to the income statement.
It's important to note that in some cases, sundry income may be subject to different tax laws or regulations than the company's main business income. Therefore, it's important to properly classify and track sundry income to ensure compliance with tax laws and regulations.
Also, it is important to note that sundry income should be recorded only when it is earned and not when it is received. A company should record the income when it is earned and match it to the expense incurred to generate that income. The net amount is then credited to the income statement.
Sundry income debit or credit in profit and loss account
In a profit and loss account, sundry income is recorded as a credit. A credit represents an increase in the company's assets or a decrease in liabilities, which is the case when the company earns income.
When a company earns sundry income, it is recorded in the income statement and increases the company's revenue or income. This is a positive event for the company, as it means the company has more money coming in than going out. Therefore, it is recorded as a credit on the profit and loss account.
For example, if a company earns $1,000 in sundry income, it would be recorded as a credit of $1,000 in the profit and loss account, which would increase the company's revenue by that amount.
It is important to note that in the double entry accounting system, every debit has a corresponding credit. So when the sundry income is recorded as a credit, it will also be recorded as a debit in another account. For example, if the sundry income is from rental, it will be debited to rental income account in the income statement and also credited to sundry income account to maintain the double entry system.
Sources of Sundry Income
Usually sundry income include income from various sources. Their character may change from one period to another. For example, profits on the sales minor assets may qualify as sundry income in one company, but the same profit may be main income in another company. It depends on the nature of the business involved.
There are many potential sources of sundry income, but some common examples include:
- Rental income: Income earned from renting out property, such as real estate or equipment.
- Interest income: Income earned from investments such as savings accounts, bonds, or other fixed-income securities.
- Gains from the sale of assets: Income earned from selling assets such as investments, real estate, or equipment at a higher price than what was paid for them.
- Dividend income: Income earned from stocks and other equity investments, which is paid by the company to its shareholders.
- Royalty income: Income earned from intellectual property such as patents, trademarks, and copyrights.
- Commission income: Income earned by salespeople, brokers, and other professionals based on their sales or deals.
- Foreign exchange gains: Income earned from favorable changes in exchange rates when converting foreign currency.
- Other miscellaneous income: any other income that a company receives that is not part of their main business operations.
Sundry income may include for example income from sources such as interest. It depends on whether the company has a significant on the interest received in a given period. In those case, interest income may be demonstrated as an entry separated from sundry income.
Sundry expenses
Sundry expenses are similar to sundry income. They are small in relation to other expenses and not too often. The companies often use general ledger account to record those amounts. If they begin to occur frequently, they should be moved to distinct account.
Sundry expenses refer to miscellaneous or various expenses that do not fit into a specific category or are not part of a company's main business operations. Sundry expenses are not related to the production or sales of goods or services, but they are still necessary for the running of the business. Examples of sundry expenses include legal fees, bank charges, or office supplies. Sundry expenses are reported separately on a company's financial statements to provide transparency and clarity to investors and stakeholders.
Some common examples of sundry expenses include:
- Legal and professional fees: Fees paid to attorneys, accountants, and other professionals for services such as legal advice, tax preparation, or audits.
- Bank charges and fees: Fees charged by banks for services such as account maintenance, wire transfers, or check printing.
- Office supplies and expenses: Expenses related to the operation of an office, such as paper, ink, office equipment, and telephone and internet service.
- Insurance premiums: The cost of insurance policies to protect the business against loss or damage.
- Travel and entertainment expenses: Expenses related to business travel, such as airfare, hotel accommodations, and meals.
- Rent and lease expenses: Expenses related to renting or leasing property, such as office space, warehouses, or equipment.
- Repairs and maintenance: Expenses related to maintaining and repairing property and equipment.
- Depreciation: The cost of assets over time, which are not a cash outflow but are accounted as an expense.
Like sundry income, it is important to properly classify and track sundry expenses to ensure compliance with tax laws and regulations.
References
- Aoyama, H., Souma, W., Nagahara, Y., Okazaki, M. P., Takayasu, H., & Takayasu, M. (2000). Pareto's law for income of individuals and debt of bankrupt companies. Fractals, 8(03), 293-300.
- Bellandi, F. (2012). Dual reporting for equity and other comprehensive income under IFRSs and U.S. GAAP. John Wiley & Sons, p. 2-3.
- Fairfield, T. and Jorratt, M. (2014). Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary Chile. Internationl Center for Tax and Development Working Paper, 17, p. 36-37.
- Sánchez, P and JE Ricart (2010). Business model innovation and sources of value creationin low-income markets. European Management Review, 7(3), 138–154.
Author: Iwona Tuleja
