Income is the earnings gained from the provision of services or goods, or from the use of assets. Income can be generated in a number of ways, including the following:
- Appreciation. Funds are used to purchase investment instruments, which appreciate in value. For example, shares in a company are purchased, which gradually increase in value over time. This type of income is unrealized until an investment instrument is sold, at which point it is considered to be realized income.
- Goods and services. A business can provide goods and services to its customers in exchange for a billed amount or cash payment. For example, a manufacturer sells a refrigerator to a customer in exchange for cash.
- Interest. Funds are loaned to a borrower, who pays interest in exchange for the use of the funds.
- Rent. Funds are invested in facilities or equipment, which are then rented out. For example, rent is earned from someone leasing an apartment, or from leasing a vehicle.
- Wages. An individual can work for a business entity, and is paid for his or her hours worked.
A decrease in an obligation is also considered income. For example, a borrower is not able to pay back a $200,000 loan, so the lender grants a $50,000 reduction of the loan balance. This $50,000 amount is considered income to the borrower.
From the perspective of a household or business, income is considered to be the aggregation of all of the preceding forms of income. Thus, the income of a household would include the salaries of the husband and wife, plus any appreciation on their investments, and interest income on any bonds they may own.