Thursday, January 24, 2013
What is Gross Income
Many people ask the question, what is gross income? Many of them
know the answer and many do not. Well, here's a simpler explanation of
what we actually mean by gross income. Read on...
Several times you've heard people, mainly accountants, while
calculating taxes, using the terms 'gross profit', 'net income', 'gross
annual income', etc. Many, who do not come from an accounting
background, do not follow these terms. They keep wondering what is gross
income? So for them, here is a simple explanation of what we actually
mean by gross income.
Definition
When you get your salary, you will notice that the word gross income is mentioned in your pay slip. It is the total amount that you make before all the taxes have been deducted. Gross income can also be called gross profit. In order words, you can also say that gross income is the sum total of all the income, that a person or company makes. The source of the income, is not that important. The various things this income usually includes are:
Many people do not know the difference between gross income and net income. Now, no longer will you be confused about the difference between gross and net income. So, net income of a business is what remains from the gross profit, after you have deducted all the costs of the business such as the depreciation, interest, tax deductions, etc. For a person however, the net income is simply what remains, after, from the gross profit, you deduct the allowances and the deductions. This is done to find out what is the amount of income tax the person has to pay. Thus, now I hope, you no longer will be confused between gross income and net income. So, now that you know what is gross profit, let us now see some other terms which are also related to gross income; gross annual income and adjusted gross income.
Gross Annual Income
It is pretty clear from the name itself, what gross annual income can actually mean. It is the total gross income that you have made over the entire year. It is your total yearly income before any sort of deductions such as tax. Suppose, I earn a monthly salary of USD 3000, then my yearly salary will be USD36000. This is the gross income before deducting all the taxes and the figure of USD 36000 is my gross annual. The amount that I will take home by the end of the year after deducting my taxes from the gross income, is the total net income.
Adjusted Gross Income (AGI)
The Internal Revenue Service or the IRS uses the AGI in order to find out whether the tax payer is eligible for some of the tax benefits. If you want to know how to calculate the AGI, here's how. First you have to find out your gross income and then from that, you have to deduct the qualified deduction i.e. moving expenses, and alimony, 50% of the self employment tax, health insurances, interest on student loans, etc. All these have to be subtracted from the gross income. The adjusted income is also called the net income. If you see the first page of the IRS form 1040 and 104A, you will see that the entire section deals only with the adjusted gross income. Some people tend to confuse AGI with the modified adjusted gross income, which is almost similar to the adjusted gross profit, except for certain factors which are not included in the former. They are passive income and losses, student education fees, interest on student loans, taxable social security, etc. Modified gross income is higher than AGI, but always lower than the gross profit.
So, now you are clear as to what is meant by gross income. Henceforth, while calculating taxes or your annual salary, you will not find it confusing any more in following these terms. So, next time, when you see the accountant calculating something using terms like gross profit or profit etc, you can join in and help him too!
By Ratnashri Dutta
Published: 8/10/2010
Read more at Buzzle: http://www.buzzle.com/articles/what-is-gross-income.html
Definition
When you get your salary, you will notice that the word gross income is mentioned in your pay slip. It is the total amount that you make before all the taxes have been deducted. Gross income can also be called gross profit. In order words, you can also say that gross income is the sum total of all the income, that a person or company makes. The source of the income, is not that important. The various things this income usually includes are:
- Rents
- Royalties
- Interest
- Dividends
- Any gains that you or the company has derived after making dealings in property
- Pensions
- Any income related to decedent
- Any income from life insurance
- Income from endowment contracts
- Annuities
- Income from any interest in an estate or maybe trust
- Some sort of compensation for any services which includes fees or commissions or fringe benefits
- The gross profit that has been derived from business
- The gains derived from any dealings in property
- Alimony
- Separate maintenance payments
Many people do not know the difference between gross income and net income. Now, no longer will you be confused about the difference between gross and net income. So, net income of a business is what remains from the gross profit, after you have deducted all the costs of the business such as the depreciation, interest, tax deductions, etc. For a person however, the net income is simply what remains, after, from the gross profit, you deduct the allowances and the deductions. This is done to find out what is the amount of income tax the person has to pay. Thus, now I hope, you no longer will be confused between gross income and net income. So, now that you know what is gross profit, let us now see some other terms which are also related to gross income; gross annual income and adjusted gross income.
Gross Annual Income
It is pretty clear from the name itself, what gross annual income can actually mean. It is the total gross income that you have made over the entire year. It is your total yearly income before any sort of deductions such as tax. Suppose, I earn a monthly salary of USD 3000, then my yearly salary will be USD36000. This is the gross income before deducting all the taxes and the figure of USD 36000 is my gross annual. The amount that I will take home by the end of the year after deducting my taxes from the gross income, is the total net income.
Adjusted Gross Income (AGI)
The Internal Revenue Service or the IRS uses the AGI in order to find out whether the tax payer is eligible for some of the tax benefits. If you want to know how to calculate the AGI, here's how. First you have to find out your gross income and then from that, you have to deduct the qualified deduction i.e. moving expenses, and alimony, 50% of the self employment tax, health insurances, interest on student loans, etc. All these have to be subtracted from the gross income. The adjusted income is also called the net income. If you see the first page of the IRS form 1040 and 104A, you will see that the entire section deals only with the adjusted gross income. Some people tend to confuse AGI with the modified adjusted gross income, which is almost similar to the adjusted gross profit, except for certain factors which are not included in the former. They are passive income and losses, student education fees, interest on student loans, taxable social security, etc. Modified gross income is higher than AGI, but always lower than the gross profit.
So, now you are clear as to what is meant by gross income. Henceforth, while calculating taxes or your annual salary, you will not find it confusing any more in following these terms. So, next time, when you see the accountant calculating something using terms like gross profit or profit etc, you can join in and help him too!
By Ratnashri Dutta
Published: 8/10/2010
Read more at Buzzle: http://www.buzzle.com/articles/what-is-gross-income.html
What is Adjusted Gross Income (AGI)
Adjusted gross income is a financial measure of determining how
much of the gross income you earn is taxable. This article will help in
understanding this concept and also in calculating this measure.
We all are aware of the term gross income. For people who are not,
gross income is the total income of a person prior to tax deductions and
interest payments. Gross income includes wages, interest income, income
from retirement accounts, rental income, capital gains, alimony amount,
unemployment compensation, farm income and royalty income. This amount
is also known as pre tax net sales less cost of sales.
Adjusted Gross Income Definition
An adjusted gross income (AGI), in simple terms, is a fraction of the gross income earned, that determines how much percentage of it is taxable. This term can be defined as a chunk of the gross income calculated after deducting enumerated deductions like medical expenses, unreimbursed business expenses, moving expenses, IRA (Individual retirement Account) deductions, alimony and deductible retirement plan contributions. AGI is often known as the net income which is used in tax calculations after the tax credits and payments are looped into the gross income.
This figure is used by IRS (Internal Revenue Service) to determine a tax payer's eligibility to avail certain tax benefits. Lower the AGI is, higher are the benefits availed by the taxpayer. Say for instance, you are a teacher and you have just moved to a new place. If you deduct the moving expenses and cost of supplies required for your classroom teaching, these deductions will lower your AGI. However they can be shown as tax deductible expenses and can fetch you tax refunds.
On Form 1040 (Standard US Income Tax Return), The AGI section is the last number on the first page of the form. Precisely, AGI decides your income tax liability that includes tax bracket and qualification credits. The IRS also has an adjusted gross income calculator (AGI calculator) that will aid in the calculation.
Modified Adjusted Gross Income
Modified Adjusted gross income (MAGI), or modified gross income is not the same as AGI. MAGI is the amount of income which is calculated by adding certain deducted expenses (passive income like student loan deductions, student tuition fees, taxable social security, self employment tax, IRA contribution deductions, higher education costs, foreign income and foreign housing deductions) to the AGI. This income determines how much percentage of the individual's contribution towards IRA is deductible and whether the tax payer is eligible to avail tax benefits (like social security benefits, traditional IRA contributions and some tax deductions) or not. So higher this MAGI amount, the deductible amount of IRA's contribution reduces. Remember, this amount is not tax deductible. Also, many a time, this amount is either higher than or nearly same as the adjusted gross income. However there is a benchmark on MAGI, as all these benefits are quantified by limits. If MAGI is quite high, a person may not be eligible to avail the benefits.
So if you want to find out your adjusted gross income for the current financial year, take into account the AGI of the previous financial year. Once, you are done with calculation of AGI, the next concern is calculating MAGI. Make a checklist of all deductions that need to be added to your current AGI. And make sure that the deductions that are added to your MAGI do not exceed a certain limit as a high amount of MAGI cannot earn you tax refunds.
By Narayani Karthik
Published: 8/12/2010
Read more at Buzzle: http://www.buzzle.com/articles/what-is-adjusted-gross-income-agi.html
Adjusted Gross Income Definition
An adjusted gross income (AGI), in simple terms, is a fraction of the gross income earned, that determines how much percentage of it is taxable. This term can be defined as a chunk of the gross income calculated after deducting enumerated deductions like medical expenses, unreimbursed business expenses, moving expenses, IRA (Individual retirement Account) deductions, alimony and deductible retirement plan contributions. AGI is often known as the net income which is used in tax calculations after the tax credits and payments are looped into the gross income.
This figure is used by IRS (Internal Revenue Service) to determine a tax payer's eligibility to avail certain tax benefits. Lower the AGI is, higher are the benefits availed by the taxpayer. Say for instance, you are a teacher and you have just moved to a new place. If you deduct the moving expenses and cost of supplies required for your classroom teaching, these deductions will lower your AGI. However they can be shown as tax deductible expenses and can fetch you tax refunds.
On Form 1040 (Standard US Income Tax Return), The AGI section is the last number on the first page of the form. Precisely, AGI decides your income tax liability that includes tax bracket and qualification credits. The IRS also has an adjusted gross income calculator (AGI calculator) that will aid in the calculation.
Modified Adjusted Gross Income
Modified Adjusted gross income (MAGI), or modified gross income is not the same as AGI. MAGI is the amount of income which is calculated by adding certain deducted expenses (passive income like student loan deductions, student tuition fees, taxable social security, self employment tax, IRA contribution deductions, higher education costs, foreign income and foreign housing deductions) to the AGI. This income determines how much percentage of the individual's contribution towards IRA is deductible and whether the tax payer is eligible to avail tax benefits (like social security benefits, traditional IRA contributions and some tax deductions) or not. So higher this MAGI amount, the deductible amount of IRA's contribution reduces. Remember, this amount is not tax deductible. Also, many a time, this amount is either higher than or nearly same as the adjusted gross income. However there is a benchmark on MAGI, as all these benefits are quantified by limits. If MAGI is quite high, a person may not be eligible to avail the benefits.
So if you want to find out your adjusted gross income for the current financial year, take into account the AGI of the previous financial year. Once, you are done with calculation of AGI, the next concern is calculating MAGI. Make a checklist of all deductions that need to be added to your current AGI. And make sure that the deductions that are added to your MAGI do not exceed a certain limit as a high amount of MAGI cannot earn you tax refunds.
By Narayani Karthik
Published: 8/12/2010
Read more at Buzzle: http://www.buzzle.com/articles/what-is-adjusted-gross-income-agi.html
Friday, January 11, 2013
Cost Cutting Ideas for Companies
This article tells you about cost cutting ideas for companies that
would help you save money without affecting the productivity of the
company. To know more about ideas for cost cutting in companies, read
on...
So you have canceled all the office parties, stopped gifting your employees, and even laid off few employees and still, you face the economic burden. Well that's obvious because the above ideas for cost cutting in companies were not the right or enough solutions for the problem. This way you can just break the old ties with people who believed you and who helped you taste the success. So laying off employees or compromising on their rights and comforts is the last thing you should do. Doing something like this is definitely going to affect the productivity of your employees and would create an insecure and suspicious environment in the company. To avoid such a scenario, this article tells you about some cost cutting ideas for companies that you can try, to get instant results as well.
Cost Cutting Measures for Business
Before you chalk out any cost cutting ideas for businesses it is essential that you analyze everything about your business financing. The first step would be assessing your profits and expenses. A proper look at it would help you decide the areas in which you can afford and employ some cost cutting strategies. For example, there are various areas when it comes business, such as, inventory, insurance, telephone costs, travel and entertainment, vacations, and manufacturing, etc. Once you decide the area of cost cutting, you have to plan the appropriate cost control techniques to save more in that area. Efficient personnel management is important along with the financial management for cost cutting. Instead of laying off employees, stop recruiting new people and see if the employees can do multiple tasks. For example, ask your secretory only to do the accounting job if possible.
One of the other ideas for cost cutting in companies is paying attention to the marketing strategies of your business. If you think you are spending a lot on your marketing plans, especially when you are not producing with that rate, then it is wise to revise them. For example, you can save the money on advertising and instead go for client references to get more business. One of the important aspect of cost control management is investing in assets and not in liabilities. So do not hesitate to own things that make your work easy. For example, instead of appointing a persons for accounting, it is better to have accounting software that requires only one person to manage it. Another basic area where you must pay attention when it comes to applying most of the cost control methods is administrative expenses. You must see that the staff uses all the office infrastructure responsibly without wasting anything. For example, switching off the lights and computers, etc., when not in use.
Creative Cost Cutting Ideas in Companies
Apart from the basic ones, there are a lot of industry-specific innovative cost cutting ideas in companies that you can come up with. For example, if you are a publication house and need to do a lot of rough paperwork then make it a rule to use both the sides of the papers. This will help you cut on the paper cost. You can also think of selling unnecessary things from your office, such as furniture pieces and some insurances as well. You can also think of part-time employees and guest consultants that would save a lot of money without affecting the production process. Don't let the employees use the office telephone for personal calls. If the employees are ready to work from home then encourage that so that there will be less burden on the office infrastructure. Try to postpone the salary hikes and appraisals if you can convince the employees. If you spend on traveling and organizing seminars then avoid attending seminars held outside the city. If you wish to organize seminars, hold it in partnership with other companies. These were some of the cost cutting tips for companies.
The above cost cutting ideas can definitely help you save up to a great extent. The only thing you have to do is implement the above ideas for cost cutting in companies efficiently. I hope you recover soon from the cost cutting crunch.
By Geeta Dhavale
Published: 9/10/2010
Read more at Buzzle: http://www.buzzle.com/articles/cost-cutting-ideas-for-companies.html
So you have canceled all the office parties, stopped gifting your employees, and even laid off few employees and still, you face the economic burden. Well that's obvious because the above ideas for cost cutting in companies were not the right or enough solutions for the problem. This way you can just break the old ties with people who believed you and who helped you taste the success. So laying off employees or compromising on their rights and comforts is the last thing you should do. Doing something like this is definitely going to affect the productivity of your employees and would create an insecure and suspicious environment in the company. To avoid such a scenario, this article tells you about some cost cutting ideas for companies that you can try, to get instant results as well.
Cost Cutting Measures for Business
Before you chalk out any cost cutting ideas for businesses it is essential that you analyze everything about your business financing. The first step would be assessing your profits and expenses. A proper look at it would help you decide the areas in which you can afford and employ some cost cutting strategies. For example, there are various areas when it comes business, such as, inventory, insurance, telephone costs, travel and entertainment, vacations, and manufacturing, etc. Once you decide the area of cost cutting, you have to plan the appropriate cost control techniques to save more in that area. Efficient personnel management is important along with the financial management for cost cutting. Instead of laying off employees, stop recruiting new people and see if the employees can do multiple tasks. For example, ask your secretory only to do the accounting job if possible.
One of the other ideas for cost cutting in companies is paying attention to the marketing strategies of your business. If you think you are spending a lot on your marketing plans, especially when you are not producing with that rate, then it is wise to revise them. For example, you can save the money on advertising and instead go for client references to get more business. One of the important aspect of cost control management is investing in assets and not in liabilities. So do not hesitate to own things that make your work easy. For example, instead of appointing a persons for accounting, it is better to have accounting software that requires only one person to manage it. Another basic area where you must pay attention when it comes to applying most of the cost control methods is administrative expenses. You must see that the staff uses all the office infrastructure responsibly without wasting anything. For example, switching off the lights and computers, etc., when not in use.
Creative Cost Cutting Ideas in Companies
Apart from the basic ones, there are a lot of industry-specific innovative cost cutting ideas in companies that you can come up with. For example, if you are a publication house and need to do a lot of rough paperwork then make it a rule to use both the sides of the papers. This will help you cut on the paper cost. You can also think of selling unnecessary things from your office, such as furniture pieces and some insurances as well. You can also think of part-time employees and guest consultants that would save a lot of money without affecting the production process. Don't let the employees use the office telephone for personal calls. If the employees are ready to work from home then encourage that so that there will be less burden on the office infrastructure. Try to postpone the salary hikes and appraisals if you can convince the employees. If you spend on traveling and organizing seminars then avoid attending seminars held outside the city. If you wish to organize seminars, hold it in partnership with other companies. These were some of the cost cutting tips for companies.
The above cost cutting ideas can definitely help you save up to a great extent. The only thing you have to do is implement the above ideas for cost cutting in companies efficiently. I hope you recover soon from the cost cutting crunch.
By Geeta Dhavale
Published: 9/10/2010
Read more at Buzzle: http://www.buzzle.com/articles/cost-cutting-ideas-for-companies.html
Gross Vs. Net Revenue
The comparison between gross and net revenue presented in this
article is aimed at clearing out all your doubts regarding these two
important accounting concepts. Keep reading ahead to know how the two
are different.
Accounting is the backbone of any business, as it guarantees sound financial health, which is essential for smooth operations. If you are new to accounting and reading balance sheets, two of the prime concepts that you need to understand, are gross revenue and net revenue. I was personally quite confused about what both of these concepts mean, until I found out for myself. That prompted me to present a comparison between net and gross revenue, in this Buzzle article.
What is Revenue?
Accounting is the backbone of any business, as it guarantees sound financial health, which is essential for smooth operations. If you are new to accounting and reading balance sheets, two of the prime concepts that you need to understand, are gross revenue and net revenue. I was personally quite confused about what both of these concepts mean, until I found out for myself. That prompted me to present a comparison between net and gross revenue, in this Buzzle article.
What is Revenue?
To put in simplest words, revenue is the income received by any company from sale of its goods or services. Revenue can also mean 'tax revenue', which is the money collected by the government as taxes. Broadly speaking, revenue is the income received by any financial entity in return for services offered or goods sold. In some countries, like the United Kingdom and India, revenue is known by the name of 'Turnover' of a company.
It is the incoming receipts generated as a result of goods sold or services provided. It is the prime parameter of consideration, when evaluating the financial health of a company. Revenue could be classified into two types - gross and net revenue. 'Gross' and 'Net' are two terms that you will come across a lot, when studying accounting. Let us look at the difference between gross and net revenue in the rest of the article, which are two important terms related to financial management of a company.
Gross Vs. Net Revenue Comparison
Let us begin this comparison, by defining gross and net revenue at the start. After that, we are free to discuss the significance of these two terms, in terms of stock research and evaluation of overall business performance.
Definition
Gross revenue is the income generated by a company, through sale of goods, after adjusting for cost of goods sold (production costs), without any other kind of deductions taken into consideration. On the other hand, net revenue or net income is calculated by deducting taxes and all other expenses, from the gross revenue or gross income. In retail businesses, the income generated by a company through sales, minus all the commissions, maintenance expenses and refunds that it pays, is called net revenue. So if the expenses of a company in the form of commissions, depreciation and refunds, along with taxes are subtracted from gross revenue, all that you are left with is net revenue. In banking sector too, this term may be used with the same meaning. Some people use net revenue as a synonym for net profit. In that case too, it is the gross revenue minus all the expenses and taxation involved after sales.
Significance
Gross revenue of the company is an important factor that gives you a rough idea about the sales volume of a company. Gross revenue or income doesn't clearly reflect the profitability of any company, as taxation and other expenses are not taken into consideration, while calculating it. However, it does reflect the efficiency with which human and material resources have been used.
Net revenue or net income, is the total profit generated by a business, after adjusting for expenses and taxation. It is colloquially referred to, as the 'bottom line', since it is placed at the bottom of a financial statement and is certainly the most important of all numbers displayed in there. Net income, declared quarterly, is the most important parameter for the investors, who are evaluating the past performance of a company, as a potential stock investment candidate.
It is important that you know what these terms mean, if you are going to be studying company balance sheets for stock investing and other purposes. Taking a crash course in accounting would be a smart move if you are interested in understanding financial transactions in greater detail.
By Omkar Phatak
Last Updated: 2/23/2012
Read more at Buzzle: http://www.buzzle.com/articles/gross-vs-net-revenue.html
Discretionary Income
This article will tell you all that you need to know about
discretionary income, which happens to be very different from disposable
income for an individual.
When we speak of the income of an individual, the two concepts that come to the fore are disposable income and discretionary income. Disposable income is the amount of money that the person can spend after taxes have been cut from this amount. These taxes can be deducted at source or later in the year. On the other hand, discretionary income implies the amount that is left from the disposable income, once expenses related to food, shelter and clothing have been paid off.
Thus it can be said that it is the money that is available to spend once all the essentials and necessities have been purchased by an individual. Hence money that is spent on luxury items, vacations, shopping sprees and other objects all fall under this category, making it much lesser than the gross income.
Implications of Discretionary Income
If the economy of a country sees high levels of discretionary incomes, this means that a lot of people are living with a high standard. If more people are buying luxury items and expensive gadgets, this is a sure sign that the economy on a whole is doing well and prospering. Moreover, in developed countries the rate of fluctuation of this income is quite low, because people are used to living in a certain way. Hence, even in times of economic recession and downturn, people still like to spend money on a lot of luxury items.
Simply knowing what the definition is not enough though, because a study of this concept leads industrialists and marketers to define their strategies. Add to that the fact that it is very difficult to establish at what point a persons expenditure crosses over from essential to luxurious, and this makes this concept a highly theoretical one. For instance, food is categorized as an essential item in this list, but for someone, who is a nonbeliever in financial management and spends all extra income in fancy restaurants, this concept becomes misleading. Additionally, there are certain other areas like education, health care and transportation which are also essential for most people.
For sellers and consumer product manufacturers this income equates to the buying power of customers. They analyze many statistics to determine their sales forecasts and their production strategies, so that there is no excessive or inadequate inventory. Economists claim that investments and savings also count into it, but these should take precedence over say a fancy and expensive indulgence. But the situation gets even more difficult to understand because of the use of credit cards. Since individuals spend more than they make, most of the time, because of credit cards, discretionary income becomes even harder to calculate in such a scenario. Paying off debts as soon as possible is very important as a result of that, and you must understand that it is more important to have higher disposable income than simply earn a higher salary and spend everything on living expenses and bills.
The state of the economy also plays a role in the amount of discretionary income a person has. In times of economic recessions, it will obviously be lower. But when the economy is booming, every person will have a higher percentage to spend. In times of high inflation, the number falls again, and this in turn leads to rising personal debt, which ultimately results in higher levels of national debt as well. Thus there are a number of things that are intermittently linked with its levels, even though this is a concept that has no standardized value and formula to calculate.
Here are some useful statistics, sorted mainly by age and other parameters.
Thus, households whose head is in the age group 35-50 have the most, and this is no surprise since this is the age when working people are at their peak and can make the most money. Additionally, households whose heads have a higher education also earn more income, and thus have a high aggregate of such income, in comparison with a household that is headed by an individual with lesser education. This is also easy to explain.
At the end of the day, it's a figure for expressing the standard of living of an individual in economics, and the overall picture gives an idea about the health of the nations economy as well. Putting this concept into practical use is a rather impossible task.
By Rahul Thadani
Published: 12/11/2010
Read more at Buzzle: http://www.buzzle.com/articles/discretionary-income.html
When we speak of the income of an individual, the two concepts that come to the fore are disposable income and discretionary income. Disposable income is the amount of money that the person can spend after taxes have been cut from this amount. These taxes can be deducted at source or later in the year. On the other hand, discretionary income implies the amount that is left from the disposable income, once expenses related to food, shelter and clothing have been paid off.
Thus it can be said that it is the money that is available to spend once all the essentials and necessities have been purchased by an individual. Hence money that is spent on luxury items, vacations, shopping sprees and other objects all fall under this category, making it much lesser than the gross income.
Implications of Discretionary Income
If the economy of a country sees high levels of discretionary incomes, this means that a lot of people are living with a high standard. If more people are buying luxury items and expensive gadgets, this is a sure sign that the economy on a whole is doing well and prospering. Moreover, in developed countries the rate of fluctuation of this income is quite low, because people are used to living in a certain way. Hence, even in times of economic recession and downturn, people still like to spend money on a lot of luxury items.
Simply knowing what the definition is not enough though, because a study of this concept leads industrialists and marketers to define their strategies. Add to that the fact that it is very difficult to establish at what point a persons expenditure crosses over from essential to luxurious, and this makes this concept a highly theoretical one. For instance, food is categorized as an essential item in this list, but for someone, who is a nonbeliever in financial management and spends all extra income in fancy restaurants, this concept becomes misleading. Additionally, there are certain other areas like education, health care and transportation which are also essential for most people.
For sellers and consumer product manufacturers this income equates to the buying power of customers. They analyze many statistics to determine their sales forecasts and their production strategies, so that there is no excessive or inadequate inventory. Economists claim that investments and savings also count into it, but these should take precedence over say a fancy and expensive indulgence. But the situation gets even more difficult to understand because of the use of credit cards. Since individuals spend more than they make, most of the time, because of credit cards, discretionary income becomes even harder to calculate in such a scenario. Paying off debts as soon as possible is very important as a result of that, and you must understand that it is more important to have higher disposable income than simply earn a higher salary and spend everything on living expenses and bills.
The state of the economy also plays a role in the amount of discretionary income a person has. In times of economic recessions, it will obviously be lower. But when the economy is booming, every person will have a higher percentage to spend. In times of high inflation, the number falls again, and this in turn leads to rising personal debt, which ultimately results in higher levels of national debt as well. Thus there are a number of things that are intermittently linked with its levels, even though this is a concept that has no standardized value and formula to calculate.
Here are some useful statistics, sorted mainly by age and other parameters.
- Households with income more than $100,000 per year are only 10% in USA. 70% of it of the country is generated from these households.
- Its overall average numbers in the country is around $20,000 per year.
- The highest value of total discretionary income was in 1997-98, coming in at $940 billion.
- Households headed by people in the age group 50-65 years have 30% of total discretionary income, and the most aggregate.
- Households headed by the 35-50 years age group have around 40% of it.
Thus, households whose head is in the age group 35-50 have the most, and this is no surprise since this is the age when working people are at their peak and can make the most money. Additionally, households whose heads have a higher education also earn more income, and thus have a high aggregate of such income, in comparison with a household that is headed by an individual with lesser education. This is also easy to explain.
At the end of the day, it's a figure for expressing the standard of living of an individual in economics, and the overall picture gives an idea about the health of the nations economy as well. Putting this concept into practical use is a rather impossible task.
By Rahul Thadani
Published: 12/11/2010
Read more at Buzzle: http://www.buzzle.com/articles/discretionary-income.html
Retained Earnings Formula
If you are looking for the formula aimed at calculating retained earnings, you have landed on the right page.
If you look closely at a company's quarterly financial report, there will be several details mentioned in there. One of the most important numbers that you as a share holder should note is the retained earnings value of the company. It is an important parameter for gauging the performance of the company in any quarter.
What are Retained Earnings?
How do companies grow and develop their capital base to make new developments that give them the edge to compete with other industries in a sector? It is only through reinvestment of their own profit in the business. These reinvested profit sums are known as retained earnings of a company. In technical language, it is the part of the net income that is reinvested by a public listed company in its business after paying out dividends to its shareholders. It is an important parameter of consideration in stock research.
It is up to the management how it uses the earnings for the benefit of the business. The funds may be diverted towards repayment of an outstanding debt or it may be used to further developmental or expansion plans.
The value of retained earnings will usually be listed under share holder's equity details in the company balance sheet. Instead of consuming the earnings, if they are invested smartly, a company prospers. It can create new assets and develop new projects which can help it cope with competition in a ruthless market.
Formula
The formula for calculation should be obvious after I defined it in the previous section. Here it is:
Retained Earnings (RE) = (Previous Retained Earnings + Net Income - Dividends Paid)
Thus you need to know three parameters. First thing is the beginner or previous retained earnings from earlier quarters and the net income of the company if any, after adjusting for losses and dividends paid.
This surplus money generated can be used for research and development or to clear out any of the outstanding debts that a company might be facing. It may also be used for marketing and buying of new machinery.
Managing the earnings is one of the prime financial management goals of any company. Great CEOs are marked by their ability to make good use of the earnings for the company's expansion in more areas. These funds provide a company with an opportunity to adapt to changing conditions and enter into previously unexplored territory, where it can increase its sales.
Using the Formula
Now that you know the formula, all that you have to do is substitute the requisite values of certain parameters to get the value. Let me illustrate it with an example.
A company has previous retained earnings of $1,000,000. In the past quarter, it has recorded a net income of $1,500,000 after taxes, out of which $300,000 must be paid in dividends. Then what will be the retained earnings of the company? Using the above formula:
Retained Earnings = ($1,000,000 + $1,500,000 - 300,000 ) = $2,200,000
Using this formula, one can account for the surplus profit made by the company, which is available for reinvestment. As explained before, retained earnings is what drives the growth of the company. Companies that have reached the top, have managers who know how to invest these earnings wisely.
By Omkar Phatak
Published: 12/11/2010
Read more at Buzzle: http://www.buzzle.com/articles/retained-earnings-formula.html
If you look closely at a company's quarterly financial report, there will be several details mentioned in there. One of the most important numbers that you as a share holder should note is the retained earnings value of the company. It is an important parameter for gauging the performance of the company in any quarter.
What are Retained Earnings?
How do companies grow and develop their capital base to make new developments that give them the edge to compete with other industries in a sector? It is only through reinvestment of their own profit in the business. These reinvested profit sums are known as retained earnings of a company. In technical language, it is the part of the net income that is reinvested by a public listed company in its business after paying out dividends to its shareholders. It is an important parameter of consideration in stock research.
It is up to the management how it uses the earnings for the benefit of the business. The funds may be diverted towards repayment of an outstanding debt or it may be used to further developmental or expansion plans.
The value of retained earnings will usually be listed under share holder's equity details in the company balance sheet. Instead of consuming the earnings, if they are invested smartly, a company prospers. It can create new assets and develop new projects which can help it cope with competition in a ruthless market.
Formula
The formula for calculation should be obvious after I defined it in the previous section. Here it is:
Retained Earnings (RE) = (Previous Retained Earnings + Net Income - Dividends Paid)
Thus you need to know three parameters. First thing is the beginner or previous retained earnings from earlier quarters and the net income of the company if any, after adjusting for losses and dividends paid.
This surplus money generated can be used for research and development or to clear out any of the outstanding debts that a company might be facing. It may also be used for marketing and buying of new machinery.
Managing the earnings is one of the prime financial management goals of any company. Great CEOs are marked by their ability to make good use of the earnings for the company's expansion in more areas. These funds provide a company with an opportunity to adapt to changing conditions and enter into previously unexplored territory, where it can increase its sales.
Using the Formula
Now that you know the formula, all that you have to do is substitute the requisite values of certain parameters to get the value. Let me illustrate it with an example.
A company has previous retained earnings of $1,000,000. In the past quarter, it has recorded a net income of $1,500,000 after taxes, out of which $300,000 must be paid in dividends. Then what will be the retained earnings of the company? Using the above formula:
Retained Earnings = ($1,000,000 + $1,500,000 - 300,000 ) = $2,200,000
Using this formula, one can account for the surplus profit made by the company, which is available for reinvestment. As explained before, retained earnings is what drives the growth of the company. Companies that have reached the top, have managers who know how to invest these earnings wisely.
By Omkar Phatak
Published: 12/11/2010
Read more at Buzzle: http://www.buzzle.com/articles/retained-earnings-formula.html
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