For tax purposes, your income from your business may include not only gross receipts or sales, but other related sources of income, such as interest on your business checking account or income incidental to your business. Report business income as follows:

• Gross receipts or sales. This includes all payments you receive in the normal course of your business.

  If you use the cash method of accounting, your gross receipts or sales are all payments you received in the course of the business year. If you have a business checking account, this is generally the amount of money you deposited in your business bank account less deposits not from sales, such as fund transfers, loans, interest, sales tax collected, and refunds. Add to this amount any cash receipts you do not deposit and the fair market value of goods and services you receive as payment in your business.

  If you use the accrual method of accounting for your business, your gross receipts or sales are generally the income you earned in the course of your business during the year, even if you did not receive payment for all of your earnings before the end of the year. For additional information on accounting methods, see IRS Publication 334, Tax Guide for Small Business, on the IRS Web site.

• Returns and allowances. Report any refunds, discounts, rebates, or other reductions from the selling price of the items that you reported in gross sales. Your returns and allowances, along with your cost of goods sold, are subtracted from your gross receipts or sales to determine your gross profit.
• Other income. You may receive income that is related to your business but does not come from your normal course of business. This includes income such as sales of scrap or byproducts, recovered bad debts, or prizes and awards. It also includes business interest from notes and accounts receivable. This income is reported as "other income," and is not included in gross sales.
• Business bank account interest. If you are a sole proprietor and you earn interest from your business bank account, report the interest with your personal interest income. Do not report this interest as business income, which is subject to self-employment tax.