A partial income statement is a subset of the general income statement that highlights specific components.
This type of statement is very helpful for auditing your company.
In this article, we will explore what a partial income statement is and why it matters.
What is a Partial Income Statement
A partial income statement differs from a normal income statement because it only shows a small part of the whole statement. Whenever professionals create this type of statement, they focus on limited components to add to the statement.
A partial income statement can be created at any accounting time period, from one day to a full year, which is not possible with a normal statement. It also helps to highlight specific elements such as gross profit, expenses, and revenue.
This statement is crafted to analyze statements at any time period. However, it does not cover the complete view of the company, making it unsuitable for verification by auditors. It is only created for internal use.
Why partial income statement important
Have you ever noticed how complicated financial statements can be? They are time-consuming and hard to understand in full, whereas a partial statement only addresses required items, making it easier to understand.
Normal reports include all data together, but professionals often need specific data for a particular decision. Using a partial income statement makes this possible, providing details of specific items for a time period.
Income Statement vs Partial Income Statement
Here are some differences between a normal income statement and a partial income statement to understand better.
1. Schedule: The accounting period of a normal income statement is specific, such as quarterly or annually, generally aligning with organizational practices.
On the other hand, a partial income statement can cover any time period between one day and a full year, as it is created for internal use.
2. Format: Organizations follow specific formats to create income statements, starting from revenue and ending with net income following GAAP rules.
On the other hand, Professionals do not follow any format when creating a partial income statement; it is set up solely to analyse specific elements.
3. Auditor: Partial income statements are created for internal use and do not follow a specific format.
They contain limited information about the company, making them unsuitable for providing the actual view and financial position of the organisation. Because of that Auditors do not verify this statement.
In contrast, normal income statements follow a format and have an accounting time period. Auditors verify these general statements.
Use of Partial Income Statement
Now that we’ve discussed why it’s important, let’s explore the practical applications of the partial income statement.
Time Period
The primary use of this method is to create statements for specific time periods. For example, professionals generate last month’s income statement to understand their earnings and estimate projections for the current month.
Note: Don’t be confused by the name (partial). In the example above, sometime professionals create a comprehensive statement covering different time periods, including all items found in a normal statement.
Regional Statement
Companies operating in multiple regions typically have a common statement. However, professionals may want specific data for a particular region. In this case, they create an income statement that includes only items relevant to that region.
Example for A company operates in the USA, India, and China. Professionals need to analyze India’s activities by creating a partial income statement specific to the Indian region.
Product Line
Companies with diverse product lines often use partial income statements to analyze the demand and value of specific products.
Example for, A famous tech company named Apple has multiple electronic products, such as mobile phones, laptops, watches, etc. So, how does the management team make decisions based on a normal income statement that includes all of the products?
That’s why professionals need to create a partial Income Statement (PIS) to obtain comprehensive information about each product, whether it’s a watch or a mobile phone.
Multiple Fields
Organisations operating in various fields require PIS to obtain clear data and information for each specific field.
Example for, Samsung, a leading mobile manufacturer, not only produces electronic items like mobile phones but also has a construction division. Here, a partial income statement aids decision-making by providing insightful details for each field.
Financial Components
Financial reports encompass numerous items and components. Sometimes, professionals create financial statements for one or two components to gain a deeper understanding.
If a document includes only one component, it’s called a single-step partial income statement. If a financial statement includes two or more components, it’s referred to as a multi-step PIS.
Types of PIS
A partial income statement shows only a portion of the actual financial statement, divided into two categories: single-step and multi-step.
Single Step: This type of partial income statement focuses on one component of the report, such as gross profit, revenue, or cost of goods.
Professionals create single-step PIS when they need to know a specific component in detail. It’s easy to understand and requires less effort, making it suitable for comparisons with other reports.
Multi-Step: A multi-step partial income statement is similar to a single-step but includes more than one component in the report. While it doesn’t include all items of a normal statement, it covers only a few components.
It’s relatively easy to create compared to a normal report but is slightly more complex than a single step. This type of PIS is also used for comparisons with other reports and covers a specific period of time for statement data.
Wrap Up
That concludes our exploration of partial income statements and their uses.
Now it’s your turn. Do you have any questions regarding this topic? Feel free to write in the comment section.
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