What is nominal income?

nominal income is income without any modification of inflation, deflation and other economic factors. It is listed in the cash units of the year. The opposite is the real income, the income modified to match inflation. If the revenue and prices statements are stated, it is important to find out whether they are listed in nominal or real values. Generally, a statement, such as “modified by inflation”, is used to provide context for information they check.

The purchase power of the currency varies over time. The amount of money that would buy good or services for one year may not be enough to buy the same goods or services in the future year. This is due to inflation, changes in the value of currency that pulls purchasing power and earns money over time. If the income is listed in the nominal values, it provides information about how much it has been obtained in a given year, but does not provide any information how much this income is projected in terms of purchasing power in the current year or another year.

One of the problems of providing a nominal income statement is that it can paint a misleading financial image. For example, the nominal income of the company could steadily rise every year, so it seems to earn more. However, if the nominal income was adjusted and turned into a real income, people could find that society was not growing or even less, depending on the rate of inflation. The same problem occurs with personal salaries that may seem every year, so people feel as if they earn more, but if they do not keep up with inflation, people actually earn less in terms of real values.

In the financial statements submitted to financial regulators and to the public, such as investors, companies are required to state whether they provide information in nominal or real values. In some regions are a companyThose obliged to use one or the other in their public publication. This is designed to ensure that people have accurate information they can use to take informed decisions. Companies can use inflation calculators and other tools to adjust their nominal income to actual values.

There are a number of online tools that people can use to transfer between nominal and real income. These can be valuable for people who want to do things like comparing earnings and salaries and evaluation of job offers. For example, if a person returns to the workforce after several years, it is not advisable to compare job offers with previous salaries. Instead, the person may adjust the nominal value of the previous salary to the actual income to determine whether the job offer is fair.