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Is profit and income the same?

I'm looking for a little help with understanding profit and income. I don't know if they are two different things or not so maybe you can tell me.

Is profit and income the same thing in finance? It seems to me that they might be different but I'm not sure about that. What are the differences between them if they are not the same?

Thanks.
Posted in Business & Commerce, asked by Inila, 4 years ago. 627 hits.

2

Profit and income are not the same thing. It is easy to get them confused though if you don't have a background in accounting or finance.

The term "income" refers to all incoming sources of money. Other terms used could be revenue or cash inflow. Any money earned that comes to the individual or business would fall under the category of income. This can be in the form of a salary or wage, rental income (from a property that is leased out to a tenant), interest revenue, commissions received, sale of goods (in the case of a business), service revenue, dividends.

The key (and possibly the confusing part) to income is that it only refers to money earned through work performed, either by an individual or a business. Therefore, if a person sells their home, for example, the proceeds of that sale would not constitute income, even though it is cash in his pocket. All assets bought and sold are handled under a different system and constitute what is called "capital".

The term "profit" refers to the leftover income after all expenses have been deducted. In the case of profit, it isn't relevant whether we are dealing with a revenue or capital transaction (which was important in the case of income above). Two examples may clarify:

1.) Revenue Transaction:

Sally runs a small business making beaded necklaces and selling them at the local weekend market. On a particular Saturday, she makes $650 worth of sales. The cost of the beads, clasps and chains to make the necklaces that were sold amounted to $175. Sally also agreed to pay her little sister $35 to help her man the stall and an additional $50 for helping her make the necklaces during the week. She has a personal connection to the organiser of the market, therefore she pays a reduced rate of $25 instead of the usual $60 for the use of the stall.

Her income = $650
Her total expenses = $175 + $35 + $50 +$25 = $285
Therefore profit = $650 - $285 = $365

2.) Capital Transaction:

Greg purchases an apartment in the city. He intends to use it as an investment property and lease it out to tenants. The cost amounts to $375,000. After 3 months, his girlfriend gets a job overseas and he decided to move with her. He therefore decided to sell the property. Luckily for Greg, there has been a turn in the market and he is able to sell his apartment within 3 weeks for a value of $392,000.

(Note: The following calculation does not take into account transfer fees, taxes, commission and other related fees)

Total proceeds: $392,000
Base cost (initial outlay) = $375,000
Therefore profit = $392,000 - $375,000 = $17,000
lefe
4 years ago

0

Profit and income are different.

Profit can be less than income, for example. If my business income each month was $1000 and I had to pay $500 dollars to my staff, then my profit would be $500. That means profit and income is therefore two different things.

Sometimes your income can be high and your losses so high that you don't have any profit.

Profit is what you walk away with when all your deductions have gone off.
Philo
4 years ago
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