What are Direct and Indirect Incomes?

By Shivank Goel|Updated : September 6th, 2022

Direct income is money made from undertaking actions that are directly relevant to your business in order to make money. In contrast, indirect income is revenue derived from sources other than your business.

Direct and Indirect Incomes

Expenses are the sums paid to acquire products or services. They may have a direct or indirect connection to the main business processes. The main distinction between direct and indirect expenses is framed by the type of expense and the timing at which it is generated by the firm.

Direct Income

The term "direct" refers to expenses that are directly tied to and attributed to a company's main lines of business. They mostly deal with the acquisition and creation of commodities and services. A company's prime cost, or the price of the goods or services it sells, includes direct expenses.

Direct costs, which might vary depending on the type of business, such as manufacturing, construction, or service providers, are directly tied to the creation of the goods or services sold.

Examples of Direct Income: Wages, Factory rent, Material Costs, Premises Renting, Fuel, Freight, Carriage Inwards etc.

Indirect Income

In contrast to direct expenses, indirect expenses are not immediately tied to and assigned to a company's main lines of business. Although they are required to keep the firm operating, indirect costs cannot be directly correlated to the price of the primary goods or services that generate income.

Similar to direct expenses, indirect expenses might vary depending on the type of organisation. Typically, the company's various departments and business sectors share these expenditures.

Examples Of Indirect Income: Royalties imposed on production, job fees, hiring fees for usage of specific equipment for a specific task, cost of special designs or drawings for a specific job, software services especially required for a certain job, and travel expenses for a specific job are a few examples of direct expenses.

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FAQs

  • Rent comes under indirect income.

  • Salary comes under indirect income.

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