What happens if income is less than expenses in a financial context?

When income is less than expenses in a financial context, an income shortfall exists. This situation indicates that the total earnings generated are insufficient to cover all the costs incurred during a specific period. As a result, an entity — whether it's an individual, business, or organization — will face a financial gap that needs to be addressed.

In such a scenario, the shortfall can lead to various implications, such as the need to draw from savings, borrow money, or reduce expenditures to balance the budget. Recognizing an income shortfall is crucial for effective financial management, as it prompts the need for corrective action to ensure long-term financial stability.

Moreover, an income shortfall highlights the importance of financial planning and budgeting, allowing individuals and businesses to strategize towards minimizing expenses or enhancing income sources to avoid potential financial difficulties in the future.