Income vs Profit: Difference and Comparison

Income, as well as Profit, are commonly used in financial research. Many people are perplexed by these 2 terms, particularly when they are used together. These terms are different from each other in various aspects based on equity and taxation.

Key Takeaways

1. Income represents the money a business or individual earns through various sources, such as sales or investments.
2. After deducting all expenses and costs from the income, profit is the remaining amount.
3. Income indicates financial inflow, while profit shows a business or investment’s financial success and viability.

Income vs Profit

The difference between Income and Profit is that Income is defined as the entire intake of revenue over a given period. Salaries, taxes, rent, as well as earnings are included. Profit is also known as the excess that remains after deducting entire costs from overall revenue.

Income refers to a corporation’s net earnings for a given fiscal year. It is computed by deducting the preferred shares dividend from the company’s net profit.

This is the remaining (favourable) sum also left with the corporation, and it can either be maintained by the business as retained profits or dispersed to equity owners as dividends. 

In accountancy, profit is defined as an income delivered to the proprietor as a result of a lucrative market manufacturing process (business).

Profit is an indicator of profitability that is the prime concern of the proprietor in the earning context of market output. Various profit measurements are widely used.

Comparison Table

Parameters of Comparison	Income	Profit
Definition	Income is defined as the firm’s actual profits for a given fiscal year.	On the other hand, Profit is defined as the excess that remains after deducting all expenses from income.
Types	When it comes to the types of income, Earned Income and Unearned Income are the major ones.	Whereas, in case of Profit, Gross Profit and Net Profit are the two types.
Dependency	Revenue as well as profit determine the income. Also, the net income is always taxable.	Whereas, Revenue determines profit in almost cases. Not only this, the net profit is never taxable.
Manipulation	Income is highly prone to manipulation and can be done anytime.	On the other hand, manipulating the profit isn’t easy at all.
Uses	The idea of net income is is ideal for determining earnings growth. Also, the financial statement never occurs in case of the net income.	Whereas, net profit assists in demonstrating the profitability of the company organization. The financial statement in case of net profit appears on the income statement accounts.

What is Income?

Income refers to a corporation’s net earnings for a given fiscal year. It is computed by deducting the preferred shares dividend from the company’s net profit.

This is the remaining (favourable) sum also left with the corporation, and it can either be maintained by the business as retained profits or dispersed to equity owners as dividends. 

It is known as the net increase in the equities stakeholder’s fund. Personal income is the sum of a person’s wage, rent, profits, interests, and profits from all sources.

Within public economics, the phrase can refer to the buildup of monetary and non-monetary consuming ability, with the former (monetary) as a substitute for overall income.

Gross income for one company is computed as the total of all revenues without the cost of items sold.

Net income subtracts expenditures from revenues: net income= revenue minus costs of products sold, expenditures, depletion, and interest, including taxation.

What is Profit?

In accountancy, profit is defined as an income delivered to the proprietor as a result of a lucrative market manufacturing process (business).

Profit is an indicator of profitability that is the prime concern of the proprietor in the earning context of market output. Various profit measurements are widely used.

Gross profit= sales income subtracting the cost of goods sold (COGS), eliminating only expenditures that could be directly connected to the manufacture or acquisition of the items. Gross profit encompasses various (overhead) expenses such as R&D, S&M, and G&A, as well as interest costs, taxes, and unusual items. 

Economic profit, abbreviated as EP, is just a one-period indicator used by accountancy professionals to measure the value made by a company in a single period—a year.

An uncertain cost of money is earnings post-tax less the equities charges. This notion is nearly equivalent to economists’ concept of economic profit. 

Optimum profit is a hypothetical term reflecting the “appropriate” degree of profit a company can attain.

This statistic is used in business to account for marketing plans, market presence, as well as other techniques of improving returns over the realistic price.

Main Differences Between Income and Profit

1. Income is defined as the firm’s actual profits for a given fiscal year. On the other hand, Profit is defined as the excess that remains after deducting all expenses from income.
2. When it comes to the types of income, Earned Income and Unearned Income are the major ones. Whereas in the case of Profit, Gross Profit and Net Profit are the two types.
3. Revenue, as well as profit, determine the income. Also, the net income is always taxable. Whereas, Revenue determines profit in most cases. Not only this, the net profit is never taxable.
4. Income is highly prone to manipulation and can be done anytime. On the other hand, manipulating the profit isn’t easy at all.
5. The idea of net income is ideal for determining earnings growth. Also, the financial statement never occurs in the case of net income. Whereas net profit assists in demonstrating the profitability of the company organization. The financial statement in the case of net profit appears on the income statement accounts.

References

1. https://www.tandfonline.com/doi/abs/10.1080/00014788.1993.9729879
2. https://www.jstor.org/stable/2226254

Last Updated : 13 July, 2023