What Is Internal Income?

Alex Newth
Alex Newth
Man climbing a rope
Man climbing a rope

The word "income" generally refers to money that comes into a business from an outside source, but internal income is different. With this version of income, money is not being gained but transferred from one section of a business to another. It typically comes in the form of one section billing another, and the second section moving part of its money balance to the first section to cover the bill. Unlike regular income, which is recorded as extra money coming into the business, internal income does not change the business’s overall balance. The main use for this is so one section can bill another for expending resources, and that section can use the money for supplies or other needs.

With internal income, there is no money being gained; it is just being moved around. That makes the term a partial misnomer, because income usually means more money is coming into the business instead of the same money simply moving around within the company. The sections between which money is transferred generally are departments or other facilities that exist within a business, such as a men’s clothing department and a women’s clothing department in the same store, or different retail stores within the same chain.

While there are several ways of processing internal income, it generally is done as one section billing another. This bill is often for expending resources, such as workers, supplies and time. For example, if the women’s clothing department needs someone from menswear to help create a display, then menswear may charge for this service, at least in part to cover the worker's salary. As with a regular invoice, the women’s department will need to pay the bill from its own funds.

The section doing the billing is gaining money in this scenario, but the business itself is not; this means internal income is filed differently. For example, if the business has $1,000 US Dollars (USD) and it is split between two sections, it does not matter how much or how often one section bills the other; there will still be $1,000 USD in the business. This increase of money is filed in the billing section’s log, while the company log files it as a transfer.

This is commonly used when the billing section has to use money or resources to help another section. To make up for the loss, the billing section requests money from the billed section. The internal income can be used like regular money, so the section can use it for getting more products, better marketing materials and a range of other things.

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