Book Income Definition

The term “book revenue” generally means a company’s financial revenue before its taxes are taken into account. Determined in accordance with generally acknowledged accounting principles (GAAP), this is the amount that a corporation reports in its financial statements for its investors or shareholders, as well as for financial regulators.

Sometimes the term is used to refer to a company’s net income less taxes; can be more accurately described as pre-tax or post-tax income.

Understanding Book Income

The calculation of accounting revenue is based on GAAP Financial Accounting and Reporting Standards set by the Financial Accounting Standards Board (FASB). The Securities & Exchange Commission (SEC) requires public companies to adhere to these standards. Revenues from the book of financial statements show the financial performance of the company in a certain period of time. Financial executives who want to present the company favorably strive to maximize publicly reported revenue from the book.

Because book revenue is determined in accordance with widespread, standard accounting rules that take into account all income and expenses, except tax liabilities, it makes it easier to compare the results of similar companies in the same time period. The use of GAAP accounting by state and local governments, public enterprises, many private companies and non-profit organizations, citizens and officials, shareholders and lenders, donors and grantors, provides an easy-to-understand presentation of accounting revenue and other financial accounting measures.

Difference between Book Income vs. Taxable Income

Questions are often asked about how accounting income differs from taxable income. These two are determined and interpreted by different authorities, serve different purposes and differ in quantity. Because of these differences, a company’s bookkeeping and taxable income can vary significantly. Neither fully reveals the economic capacity and health of the company.

Both book income and taxable income give a picture of the company’s performance for only a certain, limited period of time. As a result, accounting income may include the results of one-off, isolated events without discrimination from the income and expenses of ordinary activities.

Taxable income reflects another variable: even if a company operates consistently over time, its taxable income can vary significantly from year to year due to changes in tax law. Taxable income is the amount reported in the company’s tax return. This is the basis for a company’s tax liability to the government and is generally set for a period of 12 months. The calculation of taxable income is determined by laws and regulations that reflect a mixture of economic concepts, public policy objectives and political interests.

Companies are trying to minimize taxable income in order to limit their tax liabilities. Tax rules are determined and adhered to by taxpayers by state authorities. In the United States, federal taxable income is defined by the Internal Revenue Act and administered by the Internal Revenue Service (IRS). Income taxing states define taxable income according to their own tax laws, which often include federal tax concepts and standards, and enforce state law through their own tax agencies and commissions.