SOURCE OF INCOME

What is Income?

-generally refers to the amount of

money, property, and others.

SOURCE OF INCOME
-Means an employer or
successor employer, a labor
organization that will receive
income to the payer.
THREE TYPES OF INCOME
1. ACTIVE INCOME
- Income generated from trading
your time for money
such as;
 Salaries
 Wages
 Commissions
2.PASSIVE INCOME
- Income generated from your
assets without you working for it
such as;
 Business
 Royalties
 Rental
3.PORTFOLIO INCOME
-Income generated from selling
away an investment a higher price
than you paid for it such as;
 Investment
 Divedends
 Interest
INCOME TAX
-Refers to a type of tax government imposed on income business
depends on how much they earn.

For individuals citezens and residents aliens earning purely income and
practice of profession.
 METHODS OF REPORTING
INCOME AND EXPENSES
1. CASH METHOD
-Recording is when cash is
exchanged, revenue is reported
when cash is recieved and
expenses are recorded only when
cash is paid.
2. ACCRUAL METHOD
-Transaction happen instead of
paid cash revenue is reported
when its earneds however
expenses are recorded when
incurred.
Scenario 1
Claudio and his italian beach business, claudio goes tohis trusted
manufacturer of tourist souvenirs to buy his supply of plates worth of $1,
but the payment of the said transaction is for every friday of a week. So then
he buys another50 souvenir which is hats, worth of $2 with his initials $100
that is supposed to be the payment of plates for claudio and sells the hat for
$10 each.
at the beach he displays the hats and the plates, hats for $10 and
plates for $5 each. THe 30 hats are purchased on account and will be paid
the next day, and the remaining are sold and paid on cash.
CASH ACCOUNTING METHOD
Revenue
30 hats for $10 each on account $ 0
20 hats for $10 each in cash 200
100 plates for $5 each 500 700
Expenses
50 hats for $2 each 100
100 plates for $1 each 0 (100)
Profit $600
ACCRUAL METHOD
Revenue
30 hats for $10 each on account $ 300
20 hats for $10 each in cash 200
100 plates for $5 each 500 1000
Expenses
50 hats for $2 each 100
100 plates for $1 each 100 (100)
Profit $800