Direct income refers to the revenue earned by the business through its core operations, such as selling goods or providing services. It is the main source of income for any trading or manufacturing business and contributes directly to the calculation of gross profit. This type of income is consistent with the business’s primary purpose or activity.
Direct income is shown on the credit side of the Trading Account and helps assess how well the business is performing in its core area. Unlike indirect income, it arises from regular, day-to-day transactions with customers and clients. High direct income generally indicates good sales and business growth.
Key Points:
- Earned from the primary or core activity of the business operations.
- Includes income from sales of goods or professional services offered.
- Recorded in the Trading Account on the credit side accurately.
- Affects the calculation of gross profit or trading results directly.
- Reflects business performance in its main area of operation effectively.
Examples:
- Earned ₹2,00,000 by selling finished products to customers – direct income.
- Received ₹50,000 for providing consulting services to clients – direct income.
- Collected ₹1,20,000 through regular annual service contracts – direct income.