Question

Explain what is meant by the term "sustainable income." Why is it important to distinguish between sustainable income and actual net income? Is one more important than the other? Please explain.

Answer 1

When the term sustainable income is used, it means future period is referred. Net income is for current period.

To derive sustainable income, irregular gains and losses and expenses are removed from net income, which is an actual income. It is important to distinguish between sustainable income and actual net income, so that it can be known that how much a person can save for future. Means, to calculate the future savings, expenses such as expenses for law suit, sudden income from lottery etc, which are irregular in nature are removed from actual net income.

Both net income and sustainable income are important aspects. One cannot override another. One is important for current period, while other is important for future period.