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What is the difference between earnings and income?

A:

The differences between earnings and income change depending on the context. Technically speaking, personal earnings are just one way to generate income. In daily conversation, even among some financial professionals, the two terms are often used interchangeably. When it comes to business and financial reports, retained earnings are the accumulation of net income over time.

Earnings Vs. Income for American Households

The U.S. Census Bureau collects data on household finances from as many as four dozen different sources. All of these possible money streams are aggregated together and categorized as "income."

Earnings make up the largest and most common income source. When the Census Bureau records earnings, it is tracking the wages and salary from a job. Yet, there are many families that earn income without having any earnings. Other possible sources include annuities, dividends from stocks, pensions, Social Security benefits, interest income from loans or rents from property.

Retained Earnings Vs. Net Income

Businesses refer to earnings and income in multiple ways, especially in the financial statements or in a quarterly earnings report. Two of the most common, and commonly confused, are retained earnings and net income. Both terms appear in the financial statements, but they are listed on different lines and often have different amounts.

Net income is equal to gross profit less cost of goods sold (COGS), or operating income, minus all fixed costs and other expenses. It is the pool of generated income left over at the end of an accounting period, which is normally reported quarterly.

Retained earnings are the accumulated sums of net income the company keeps over time. In other words, retained earnings shows how much net income is saved between all past accounting periods and the present.

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