Income Statement (របាយការណ៍លទ្ធផល)

Income Statement (របាយការណ៍លទ្ធផល)

The income statement is an important component of a set of financial statements. It measures the performance of a business during an accounting period by calculating one or more of the following:

1. Gross Profit
2. Operating Income
3. Net Income
4. Earnings per Share (EPS)

There are four basic elements of a typical income statement. These are:

Revenues: Revenues are the earnings from usual business activities. In most cases, revenues are earned from sales of goods and services.

Gains: Gains are the enhancements in the assets or the reductions in liabilities caused by activities outside the usual course of business and which are eligible to be recorded according to acceptable accounting practices.

Expenses: Expenses include consumption of assets or the creation of liability against the business in the course of normal business activities.

Losses: Losses are the reductions in assets or the enhancements in liabilities caused by activities other than those in the main course of business.

Example and Format

Income statement can be prepared in either of two formats namely single-step income statement and multi-step income statement. The following example shows a simple single-step income statement. It has been prepared from the adjusted trial balance of Company A.

Company A
Income Statement
For the month ended Jan 31, 2014
Sales		$85,600
Less: Expenses:
Wages Expense	$38,200
Supplies Expense	18,480
Rent Expense	12,000
Miscellaneous Expense	3,470
Electricity Expense	2,470
Telephone Expense	1,494
Depreciation Expense	1,100
Interest Expense	150
Total Expenses		−77,364
Net Income		$8,236

There are certain incomes and expenses which are not reported on income statement but are credited or debited directly to equity, for example, the gain or loss on revaluation of fixed assets, unrealized gains on investments, foreign currency gains and losses, etc. A statement of comprehensive income includes all these debits and credits to equity besides the contents of a normal income statement.

Single Step Income Statement

Single-step income statement is one of the two most commonly used income statement formats, the other being the multi-step income statement. A single step income statement uses just one subtraction. This is done by subtotaling all the revenues and gains together at the top of income statement and subtotaling all the expenses and losses together below revenues. The sum of expenses and losses is then subtracted from the sum of revenues and gains to arrive at net income. Thus:

(Revenues + Gains) − (Expenses + Losses)
= Net Income

The net income calculated using the single-step income statement is equal to that calculated using a multi-step income statement.

Example and Format

The following example shows the format of a single-step income statement.

Company A
Income Statement
For the month ended December 31, 2013
Revenues:
Sales Revenues	$64,510
Interest Revenues	1,650
Gain on Sale of Investments	5,000
Total Revenues		$71,160
Expenses:
Cost of Goods Sold	$31,400
Depreciation Expense	7,980
Rent Expense	8,000
Advertising Expense	1,000
Salaries Expense	13,500
Utilities Expense	1,360
Loss due to Theft	300
Total Expenses		−63,540
Net Income		$7,620

The major drawback of single-step income statement is that it does not calculate the gross profit of the business. To calculate gross profit, revenues and expenses must be classified. This is why most businesses use the other format of income statement called multi-step income statement.

Multi-Step Income Statement

Multi-step income statement is one of the two most commonly used income statement formats, the other being the single-step income statement. Multi-step income statement involves more than one subtraction to arrive at net income and it provides more information than a single-step income statement. The most important of which are the gross profit and the operating profit figures.

Multi-step income statement is divided into two main sections: the operating section and the non-operating sections.

The operating section contains information about revenues and expenses of the principle business activities. The gross profit and the operating profit figures are calculated in the operating section of a multi-step income statement. All operating revenues are grouped at the top of the income statement. The operating expenses are sub-classified into cost of goods sold, selling expenses and administrative expenses.

Selling expenses are those which are incurred directly on making sales. Examples are: sales commissions, sales salaries, advertising expense, delivery expense and depreciation expense of sales equipment. The administrative expenses are those relating to general administrative activities. Examples are: depreciation expense on office building, office salaries, office supplies expense and office utilities expense.

The non-operating section of a multi-step income statement, usually labeled as 'other incomes and expenses' contains those revenues and expenses which are not earned directly through principle business activities but are incidental to them. For example gains/losses on sales of investments or fixed assets, interest revenue/expense etc. It also includes extraordinary items of revenues and expenses which are infrequent and unusual such as loss due to natural calamity.

Format and Example

The following example illustrates the format of a typical multi-step income statement. The calculation steps are clarified via the '+' and '−' symbols on the left of various income and expense items.

Company A
Income Statement
For the Year Ended December 31, 2013
Sales Revenue:
Total Sales	$137,460
− Sales Returns	−2,060
− Sales Discounts	−5,190
Net Sales Revenue		$130,210
Less: Cost of Goods Sold:
Beginning Stock	$12,300
+ Purchases	67,310
+ Freight-In	4,450
− Purchase Discounts	−3,900
− Purchase Returns	−1,000
− Ending Stock	−16,170
Cost of Goods Sold		−62,990
Gross Profit		$67,220
Operating Expenses
Selling Expenses:
Freight-Out	$6,150
Advertising Expense	5,790
Sales Commissions Expense	3,470
Administrative Expenses:
Office Salaries Expense	18,510
Office Rent Expense	14,000
Office Supplies Expense	5,330
Total Operating Expenses		−53,250
Operating Income		$13,970
Other Incomes and Expenses:
Gains on Sale Equipment	$2,430
− Loss on Sales of Investments	−1,640
− Interest Expense	−930
Net Other Incomes and Expenses		−140
Net Income		$13,830

Income Statement by Nature

The expenses in an income statement are either classified by their nature or by their function. An income statement by nature method is the one in which expenses are disclosed according to their nature such as depreciation, transports costs, rent expense, wages and salaries etc. There is no reallocation of these expenses to different functions of the entity (i.e. cost of goods sold, selling costs, administrative costs and other expenses).

This method of disclosure of expenses is used insingle step income statement and it is usually employed by small businesses due to its simplicity. However there is drawback in this method that it cannot be used to calculate gross profit within the income statement.

The following example shows the format of an income statement by nature.

Company A
Income Statement
For the Year Ended June 31, 2014
Sales		$305,610
Expenses:
Beginning Inventory	$16,800
Purchases	184,100
Ending Inventory	−21,050
Depreciation Expense	14,790
Rent Expense	21,000
Salaries and Wages Expense	38,320
Supplies Expense	3,510
Utilities Expense	6,900
Interest Expense	375
Total Expenses		−264,745
Net Income		$40,865

Income Statement by Function

An income statement by function is the one in which expenses are disclosed according to their functions such are cost of goods sold, selling expenses, administrative expenses, other expenses/losses etc. This method allows us to calculate gross profit and operating profit within the income statement and therefore it is usually used in the multi-step format of income statement. Most large and medium sized businesses use the function method of expense disclosure.

The use of function method to disclose expenses still requires us to disclose the individual expenses by nature method under each function either on the face of the income statement or in the notes to the income statement.

The following example shows the format of an income statement by function of expense.

Company A
Income Statement
For the Year Ended June 31, 2014
Sales		$789,160
Cost of Goods Sold		−445,940
Gross Profit		$343,220
Operating Expenses:
Selling Expenses	$109,310
Administrative Expenses	127,270
Total Operating Expenses		−236,580
Operating Income		$106,640
Other Incomes/Expenses:
Gain on Sale of Equipment	$3,570
Interest Expense	−1,150
Net Other Incomes/Expenses:		2,420
Net Income		$104,220