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Hi sir
I didn’t quite understand parts of income definition. Income is defined as follows“increases in economic benefits during accounting period in the form of inflows or enhancement of assets or decreases of liabilities that result in an increase in equity, other then those relating to contribution from equity participants.”
I understand the increase the economic benefit but can you explain how it enhance assets or it decreases liabilities?
thanks
Hi,
Think about a simple credit sale where we are increasing the asset and increasing the income. The increase of the asset is an enhancement of receivables and therefore we have income as the other side of the entry.
The decrease in the liability is a bit more of a challenge, but think about when we release deferred income. The reduction in the liability is therefore an increase in income taken through profit or loss.
Thanks
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