The Income statement discloses the financial performance of an enterprise during a given year or operating cycle.
That is whether the enterprise’s operations resulted in a profit or loss.
It is therefore a profitability statement that shows an organization’s revenues and expenditures or costs in a particular period.
This statement is normally prepared before the statement of the financial position because the ending figure after subtracting expenditures from incomes (net or retained profits or loss) connects the income statement and statement of financial position.
Initially, it is critical to appreciate that the income statement is part of the double-entry system bookkeeping system, whereas the statement of financial position is not.
It is easy to be put off by the fact that the income statement is set out in vertical form whereas other ledger accounts are set out in ‘T’ account form.
However, you must remember that, although not presented as such, the income statement is a ‘T’ account and the double entry principles apply therein as with any other such account.
Below, we present the vertical format or statement. Still, for the avoidance of doubt, we follow it with an example that compares the vertical format and the horizontal format of the income statement. You should however note that the income statement has two sections;
- The trading account and
- The profit and loss account
Later you will discover that the second section is followed by 3) other comprehensive income.
In which case the income statement now becomes the statement of comprehensive income or simply income statement and other comprehensive income; The format of a statement of comprehensive income (as is published) will also be shown.
The income statement takes the following format
XYX Income statement for the year ended
Sales; revenue XXXX
Less; Cost of goods sold.
Operation inventory XXX
Add purchases XXX
XXX
Less Closing inventory XXX XXXX
Gross profits XXXX
Less; Operating expenses
Rent XXX
Electricity XXX
Salaries XXX
Etc XXX XXXX
Net profit before finance costs and taxation XXXX
Finance costs (XXX)
Net profit before taxation XXXX
Taxation (XXX)
Net profit for the year XXXX
The trading account ranges from the sales revenue to the gross profit.
And the profit and loss account ranges from gross profit to net profit after tax.
Manufacturing companies have an additional account called the manufacturing account or manufacturing cost statement. This statement will be given its due treatment later in the text.
However, the income statements for service firms like National Water and Sewerage Cooperation are slightly modified to suit the following format;
XYZ Income for the year ended………….
Income revenue XXXX
Less expenditures XXXX
……… before financial costs and taxation XXXX
….costs (XXX)
…..\profit before taxation XXXX
……… (XXX)
……../profit for the year XXXX
Note; Finance costs include items of interest on loans, overdrafts, debentures, leases…… and any other forms incurred in raising finances
Income Statement Calculations Example
Question: From the following particulars relating to the firm of Tirisa for the year ending December 2023. Prepare trading account
USD
Sales …….. 155,000
Sales returns 8,000
Purchase 140,000
Purchase returns 18,500
……..inwards 12,000
Purchase wages 10,000
Opening stock 1\1\2010 55,000
Closing stock 31/12/2010 85,000
TIRISA Trading account for the year ending 31st December 2023
Usd Usd Usd
Income from sales 155,000
Less Sales returns (8,000) Sales value 147,000
…………
Less cost e.g. goods sold
Opening stock 55,000
Purchases 140,000
……….inwards 12,000
152,000
Less purchase return (18,500)
Net purchases 133,500
….available for sale 188,500
………..wages 10,000
198,500
……closing stock (85,000)
…….of goods sold (113,500)
Gross profit 33,500
Conclusion
For more accounting information please check out the CPA online monthly journal from the New York State Society of CPAs.
Nice blog right here! Also your website a lot up fast! What host are you using?
Can I am getting your affiliate link in your host? I want
my site loaded up as fast as yours lol