Advanced Financial Reporting

Both Accounting income and Economic income are concerned with the impact of profits on business enterprises. However, it is the accountants who have the responsibility to determine annual business income. Accordingly, the accountants and the economists have placed great importance on the determination of income. An economist, Irving Fisher pointed out the major role of the income concept when he stated that “I believe that the concept of income is, without exception, the most vital concept in economic science.” The accountant too has placed great importance on the income statement - it is the most important accounting report in today’s business world. (www.wiley.com/college/schroeder).

While the concept of income is essential to the economist and accountant, both groups share different views on this concept. From an economist perspective, the economist is concerned primarily with the income of persons, groups of persons or the society as a whole. Whereas, the accountant is concerned mainly with the income as it arises to business enterprises. The IASB defined income as the increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Additionally, Belkaoui in his book, Accounting Theory posited that accounting income is operationally defined as the difference between the realized revenues arising from the transactions of the period and the corresponding historical costs. (A. R. Belkaoui, p. 480). On the other hand, Hicks, an economist defined economic income as “the amount which a man can consume during a period and still remain as “well off” at the end of the period as he was at the beginning.” (Hicks, 2006).

Fisher, an economist also defined economic income as a series of events that corresponds to different states: the enjoyment of psychic income, the real income, and the...