A condensed income statement is a version of the income statement that summarises all items into a few key categories.
It includes fewer items compared to the traditional income statement. The condensed income statement includes revenue, cost of goods sold, all expenses, and net income.
Whereas the traditional income statement has an expanded view of these items, such as every expense and every source of revenue.
The condensed income statement compresses the standard statement by combining multiple items into single categories.
For example, all revenues are just written as a single line item – revenue. The same applies to expenses. All operating expenses such as selling, administrative, and others are aggregated into a single line item.
What is a condensed financial statement
Condensed financial statements are summaries of the company’s financial statements to show an overview of the statement. It is used by various stakeholders including internal teams, shareholders, and creditors.
There are three types of financial statements, and each has a condensed statement:
- Income statement
- Balance sheet
- Cash flow statement
Income statement: This financial statement, also called a profit and loss statement, shows the company’s revenue, expenses and net income.
In the condensed income statement, it includes these items:
- Revenue
- Cost of goods sold
- Gross profit
- Operating expenses
- Other expenses
- Net income
We will discuss the format and example later.
Balance Sheet: The balance sheet categorised into three parts: assets, liabilities, and shareholders’ equity. In a condensed financial statement, the balance sheet includes these items:
- Cash and cash equivalents
- Current assets
- Long-term assets
- Total assets
- Current liabilities
- Long-term liabilities
- Shareholders’ equity
- Total liabilities and shareholders’ equity
Cash flow statement: The cash flow statement shows where the company’s cash is coming from and where it’s spent. It has three sections: operating, investing, and financial cash flow.
The condensed cash flow statement includes these items:
- Opening balance
- Operating cash flow
- Investing cash flow
- Financial cash flow
- Net cash flow
- Ending balance
Condensed income statement format
The condensed income statement format is very simple. In fact, the main reason to create condensed financial statements is its simplicity.
However, it follows the GAAP rules, and auditors check both documents for verification. But the main point is it was created to show an overview of the company’s financial position.
The condensed income statement format is almost the same as the traditional statement but it’s much shorter and has fewer items. Here’s the format:
| Items | Figures |
| Revenue | |
| Cost of goods sold | |
| Gross profit | |
| Operating expenses | |
| Other expenses | |
| Net income |
Revenue: It is the money the company earns by selling its products and services. Companies may have more than one revenue source.
Cost of goods sold: This is the cost of goods that the company sold during a specific time period. It includes direct costs such as labour, raw materials, etc.
Gross profit: This figure is obtained by subtracting the cost of goods sold from revenue.
Operating expenses: These are the expenses that the company pays to run the business. Examples include SG&A expenses.
Other expenses: This expense includes paid taxes, financial expenses, and other expenses.
Net income: This shows how much the company has left after removing all of the expenses from the revenue. It can sometimes be negative, which indicates a net loss.
When compared with the traditional income statement, it has fewer components whereas the traditional income statement includes every revenue source and every type of business expense.
Condensed income statement Example
Here is a hypothetical company named Rudram, which manufactures car components.
This simple format gives a quick overview of the company’s performance and its financial health.
However, a condensed income statement does not provide a comprehensive view of the company.
It has very few accounts on the report, so you can’t make important decisions based solely on it. It is used to summarise details about the company for ease.
Wrap up
I hope you liked this article. Condensed financial statements are not hard to understand. To create one, you’ll only need a few figures from the financial statements.
Here are other topics you should read to enhance your knowledge:
What is a Traditional income statement