Key Concepts
Income is the amount earned by a business through its activities. It is recorded in the Statement of Financial Performance. There are three types:
| Type | Who earns it | Examples |
|---|---|---|
| Sales revenue | Trading businesses | Sell goods — furniture, clothing, food products |
| Service fee revenue | Service businesses | Provide services — hair-cutting fees, IT support fees, tutoring fees |
| Other income | Any business | Rental income, commission income, interest income |
Revenue Recognition Theory — Income is recognised when it is earned, regardless of when cash is received:
- Trading businesses: revenue is recognised when goods are sold to the buyer.
- Service businesses: service fee revenue is recognised when services have been provided to the customer.
The cash can come before or after the earning. Recognition follows the earning (when goods are sold or services provided), not the cash.
Listing service fee revenue under "Other income" — Service fee revenue is the primary revenue of a service business and appears as its own line item in the Statement of Financial Performance, not under "Other income."
Recording revenue when cash is received — Revenue must be recorded when earned (goods sold / services provided), not when cash is received. This is the revenue recognition theory.