What is income? Definition and meaning

Income refers to money – cash or cash-equivalents – coming in either for work done, interest or profit from capital invested, or rent from a property or land that is let. When it comes from work it is referred to as either a wage or a salary.

It is any money received by a worker, company, investor, charity, organization or the economy. It is also known as earnings.

In accounting, it is an excess of revenue over expenses for a specific accounting period – also referred to as gross profit or earnings. It can also refer to how much total assets increased in value by during an accounting period. In the USA, it means the profit of companies, while in the rest of the English-speaking world it generally means revenue.

Income can mean the money people receive for the work they do in the form of wages or salaries, or the revenues of companies (in the USA company profits). GNI (gross national income) is the total domestic and foreign output claimed by residents of a country.

Income has a range of meanings

The term has several different meanings, depending on the situation and whether it refers to an individual, company, household, or national economy. It is the consumption and savings opportunity gained by an entity within a specific timeframe – nearly always expressed in monetary terms.

For individuals and households, however, it is the sum of all the wages, salaries, profits, interest payments, rents and other forms of earnings received – in every case, over a specific period.

The majority of people aged under 65 get most of their income from work in the form of wages or salaries. For people over the age of 65, it comes primarily from pensions, social security and/or investments.

According to the ft.lexicon.com, income means:

“Money received by an employee, business, investor, or economy (see GDP). In corporate accounting, usage differs – the convention in the US is that a company’s income means its profit, though elsewhere it may mean revenue.”

Etymology of income

Etymologists (people who study the origin of words) say that the modern English word dates back to the year c. 1300, with the meaning of ‘arrival’, ‘entrance’ or ‘a coming in’. The Old English verb incuman meant ‘come in’ or ‘enter’.

The term first entered the English language with the meaning ‘that which comes in as payment for work or business’ in c. 1600. Income tax became a commonly-used term during the Napoleonic wars (1790), faded out of everyday usage for a while and was re-introduced in 1842.

‘Income’ in other languages: ingresos (Spanish), renda/receita (Portuguese), le revenu (French), reddito (Italian), Einkommen (German), доход (Russian), 所得 (Japanese), 收入 (Chinese), and دخل (Arabic).

Compound terms using income and what they mean

Per capita income: also known as income per capita or GDP per capita, is the total GDP (gross domestic product) of a country, city or region divided by its population. ‘Per capita’ is Latin for ‘per head’ – it means ‘per head of the population’.

GDP per capita gives us an idea of how comparatively wealthy or poor the citizens of one country are compared to those of other nations.

GDP per capita, rather than total GDP, tells us how rich a country’s population is. For example, China’s GDP ($10.866 trillion) is considerably larger than Switzerland’s ($0.664 trillion), but Swiss per capita income ($80,714) is more than ten times greater than China’s ($7,924).

In some rich countries, such as the United States and United Kingdom, there is serious and growing income inequality problem – often referred to as a wealth gap. This means that there is a widening gap between the standards of living of the countries’ poorer and wealthier citizens. In the Scandinavian economies, the wealth gap is much less of a problem than in the US and UK.

Accrued income: the total amount of money earned by a business during a specific accounting period. It includes money that is still owed.

Deferred income: relates to money that has come in for things that will be done in the future.

Disposable income: the personal income that is left over after direct taxes and government charges have been deducted.

Fixed income: refers to bonds and other debt instruments that typically pay a fixed interest rate.

Income effect: the impact that a change in taxes, prices or wages has or might have on individuals’ spending or saving behaviour. For example, a reduction in the amount of taxes that workers have to pay on their wages usually results in greater consumer spending across a nation.

Income share: a share (stock of a mutual company) that pays good dividends in relation to its price, as opposed to one that goes up in value quickly. It is the opposite of an accumulation share, which is likely to appreciate a lot but won’t provide you with good annual earnings.

National income: the value of all the goods and services produced and sold in a country over a specific period – generally one year.

Premium income: the revenue an insurance company generates from all the premiums its policy-holders have paid. The more premiums the insurance company sells, the better off it is – as long as there are no major accidents or natural catastrophes that year such as hurricanes, volcanic eruptions, earthquakes or severe floods. It can also refer to the money received by the writer of an option contract.

Residual income: how much money you have left each month after paying all loan installments, bills and other necessary monthly expenses. Financial institutions use the data to determine whether to approve loan applicants’ requests, or increase the amount of a current loan.

When talking about pensions, the replacement rate is what proportion of your income when you were working your current pension represents. If you monthly salary when you were in employment was $3000, and your current pension pays you $1,800 each month, your pension’s replacement rate is 60% (sixty percent of three thousand is 1,800).