Difference between Collection and Income
There are several concepts within accounting that can be confusing given the similarity of their definitions. Two of these concepts are income and collection. Many people have chosen to use these two words interchangeably, however this is not correct.
Entry |
Payment |
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|---|---|---|
| Definition | On the one hand, income is an increase in a company’s net worth. This is derived from the sale of movable or immovable property or the provision of a service. It is also defined as the recovery of an asset. | On the other hand, a collection is an entry of cash into any of the concepts mentioned above. But, unlike an income, a collection is not posted until the actual entry of money is given to the company’s treasury. |
| Where is it accounted for? | Revenues are posted to the income statement. | As for a collection, it is recorded in the balance sheet |
| terms | An income applies to economic terms. | On the other hand, a charge applies to financial terms. |
| examples | A company sells $1,000 worth of building materials. Payment by the client will be deferred to 90 days. The company then records a revenue of $1,000 USD, but not a collection. | After the 90 days have elapsed, the customer makes the payment. Then, the company registers the collection, which will go directly to the company’s treasury. The collection is considered from the moment there is a cash entry. |
| Implications | The fact that a company registers an income may or may not suppose a charge. An income does not always mean that the company charges for the good or service provided. An income only implies that the corresponding accounting entry is recorded. | A charge can occur both at the time of purchase or when a service is provided, and after a certain time agreed by both parties. A collection does not distinguish whether the payment is made in cash, check or by transfer, this does not matter. |