Difference between National Income and Private Income

What Do You Mean By Income?

Income is basically the money that is earned. The Income is used to fund the day-to-day expenditures. 

Investments, salaries, Pensions, and other Social Security are the primary sources of income for the retirees. For the individuals, the income is most often received in the form of wages or by salary. The Business income can refer to a company's remaining revenues that are paid after paying all the expenses and the taxes. In this case, the income is referred to as the "earnings.” Again, this income is subject to taxation.


Difference Between National Income and Private Income

The difference table is as follows:

Basis of Distinction

National Income

Private Income

Definition

National income is the total income which is generated by the economic activities that take place in an economy in a financial year.

Private income is the income that is generated by private individual or a household from engaging in any occupational activities or any type of income that has not received as salary or the commission

Sectors Involved

This includes the income which is generated from both the public and the private sectors

It includes income that is generated from the private sector precisely.

Components

This consist of only factor income

Consists the transfers as well with the factor earning.

Formula

National Income = Rent + Compensation + Interest + Profit + Mixed income

Private Income = Income from domestic product accruing to private sector + Net factor income from abroad + All types of transfer incomes


What is National Income?


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National income is the value of goods and services that are produced by a country in a financial year. This is the outcome of the economic activities of any country which is during a period of one year and this is valued in terms of money. The National income, national dividend, national output, and national expenditure are all synonyms. 

The National Income is the total amount of income that accrues to a country from its economic activities in a particular year’s time. This includes payments that are made to all the resources either in the form of wages, interest, rent, and profit.

The progress of a country is to be determined by the growth of the national income of the nation. There are two types of National Income Definition:

  1. Traditional Definition

  2. Modern Definition

Traditional Definition

According to Marshall - “The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. The true net annual income or revenue of the country or national dividend.”

While the Modern National Income is

  • GDP

  • GNP

Gross Domestic Product is the value of all goods which are being produced and the services that are served within a country during a year.  

Gross National Product, in order to calculate GNP, we need to collect and assess the data from all the productive activities, like the agricultural produce, wood, minerals, commodities.


What is Private Income?


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Private income is the factor of total incomes and the transfer incomes that are received from all the sources by the private sector that are the private enterprise and the households that are within or outside the country.

Private Income also includes the net factor income from abroad. Private Sector consists of all the private enterprises and households, who are the factor owners. 

Private income consists not only of the factor incomes which are earned within own territory and abroad but also consists of all the current transfers from the country’s government and rest of the world. This is the sum of earned incomes and the transfer incomes that are received by the private sector.

So, this concept of private income is quite broader than that of personal income as private income consists of personal income + profit tax + the undistributed profit. This is required to be kept in mind that the net factor income from abroad is also allocated to the private sector and not to the government sector.

In the Formula

Private Income = Income from domestic product accruing to private sector + Net factor income from abroad + All types of transfer incomes

= National Income – Income from domestic product accruing to Government Sector + Transfer incomes

FAQs (Frequently Asked Questions)

1. What are Expenditures?

Ans. Expenditure represents the payment particularly with cash or credit for the use of goods and services. This expenditure is here recorded at a single point in time, the time of its purchase, this is being compared to an expense which is recorded in a period in which this has been used up or has expired. There are different types of expenditures used in accounting and finance.

To record the consequence of expenditure, an accountant is required to show evidence of the transaction that is in occurrence. Like, a sales receipt which will show proof of an over-the-counter sale, while an invoice that will indicate a request for the payment for goods and services.

2. What are Economic Activities?

Ans. Economic activity is an activity that consists of providing, making, buying, or selling the commodities or services by the people in order to satisfy the day-to-day needs of life. Any activity which includes manufacturing, distributing, or utilizing the products or services is termed the Economic Activity.

Activities that involve money or this exchange of products or services are called economic activities.

The three types of economic activities are. 

  • Business

  • Profession 

  • Employment 

3. What Do You Mean By Factor Income?

Ans. Factor income is to be defined as the flow of income which is derived from the factors of production that are the general inputs that are required in the production of goods and services.

Factor income that is used for land is called the rent, income that is generated from labour is called the wages, and the income that is generated from capital is called the profit. The factor income of all the normal residents of a country is referred to as the National Income.