What are the financial revenues in a company?

The economic operations carried out by a company, being of different types, generate different types of income. Identifying them is essential, among other things, in order to classify accounts correctly and keep your accounts in order and up to date.

Financial income is that which, independently of the contributions made by the partners to constitute the capital of the company, is capable of generating a return for the company. In other words, they are part of the financial indicators of the company's profitability.

In this article, Appvizer details them by means of examples and reviews their classification, according to the General Accounting Plan (PGC).

See all software Accounting

What are financial income and expenses?

Generally speaking, the wealth of a company increases or decreases when it carries out economic operations. Knowing the origin and nature of these operations is necessary in order to:

• The correct classification of income and expenses,
• the determination of the profit and loss of the business.

Financial income

Income is defined as an increase in the net worth of the company, either by an increase in the value of its assets or by a decrease in its liabilities. In itself, it is the flow resulting from the operations of producing and marketing the goods or services offered by the company.

There are different types of income:

• Operating income: This refers to the income that the company or company receives directly from the development of its economic activity.
• Financial income: This is derived from investments made by the company in order to obtain a profit, such as investments in other companies that generate dividends.
• Extraordinary income: This is income from occasional and non-repetitive or ordinary operations, which is characterised by the fact that it does not derive from the company's main activity.

Expenses

As for expenses, we could define them as a decrease in the company's net worth, due to outgoings (decrease in assets) or debts (increase in liabilities) that the company has.

Like income, they can also be classified according to their nature as follows:

• Operating expenses,
• financial expenses,
• extraordinary expenses.

Financial income: accounts according to the General Chart of Accounts

Classification of accounts

The General Accounting Plan (PGC) classifies a company's income and expenses into different types of accounts:

• Assets: These are the company's assets and rights.
• Liabilities: These are the company's obligations and debts.
• Net: This is the amount contributed by the partners for the constitution and start-up of the company's operations.

The analysis and monitoring of these accounts in the balance sheet provides information on the financial situation of the company at any given time.

On the other hand, in order to obtain information on the profitability of the company, the management accounts are analysed. These are made up of the elements of:

• Group 6 - Expenses and purchases,
• Group 7 - Sales and income.

At the end of the year or the financial period determined by the company to close the accounts, when we make the difference between the Group 7 accounts and the Group 6 accounts in the profit and loss balance sheet, is when we can analyse whether the company made a loss or a profit.

Financial income: subgroup accounts

Group 7 of the General Chart of Accounts compiles information relating to:

• The disposal of goods and services rendered in the course of the company's business,
• other income,
• changes in inventories,
• profit for the year.

Account 76, corresponding to financial income, includes the following classification of related accounts:

See all software Accounting

Financial income: how is it calculated? → Examples

Before looking at some examples of calculation, let us quickly recall the following:

• On the asset accounts are posted:
  • Increases → debits,
  • decreases → on the credit side.
• In liability accounts are posted:
  • Increases → credits,
  • decreases → debits.

For the recognition of income, the PGC stipulates the following:

All Group 7 accounts are debited at year-end with a credit to account 129.

This is useful if we consider that income accounts work like liability accounts.

Example: if a company that sells supplies for the installation of video security systems makes a sale for one million euros, this value (increase) will go to the credit side.

The revenue account will be debited in case the company has to make a return to the customer after the sale. Let us suppose that out of this million euros, the company has to return 1 500 euros to the customer, which it forgot to include in the invoice, as a commercial gesture. This amount must be debited to the debit side.

🔵 Example :

Let us now take the case of a company that sells pieces of furniture (chairs, lockers, etc.) for offices and has made a sale for an amount of €500 to a startup. As the start-up had planned to make the purchase in April, it is able to pay the amount in cash. The journal entry would be posted as follows:

Accounts involved:

• 700 - Sale of goods,
• 570 - Cash.

As account 700 is a revenue account, it will increase on the credit side:

Account 570, on the other hand, is an asset account, i.e. it will increase on the debit side:

In this way, the seat is balanced.

As you could see, financial income is very easy to analyse, once you are clear about its concept and origin. The automation of the calculation of accounting entries, moreover, is possible thanks to the implementation of an accounting software.

The great advantage of this type of tool is that it allows you to entrust your accounting process to the different functionalities it offers, so that you can concentrate on those activities that bring the most value to your company.