This post is comprehensive explained about traditional income statement.
It include format and real life examples too.
Traditional income statement is one of the main financial report that give view of loss and profit of the firm.
That’s why need this article, so let’s dive in.
What is traditional income statement
Traditional income statement is one of financial reports where firm create under GAAP rules.
It include all of the revenue and expenses of the firm.
It start with sales revenue and subtracting different type of expenses and in the last got the net income of the company.
Here is it’s format of the traditional income statement.
According to GAAP, company need to create three type of financial reports that reflect the view of the company’s actual position.
- Income statement
- Balance sheet
- Cash flow statement
For knowing financial position of the company investors used these three reports.
So it necessary for anyone who want to analyse firm then consider other two reports with income statement.
Income statement created by two methods:
- Absorption cost method
- Cost margin method
When a professionals used a absorption method it created traditional income statement.
This method include variable and fixed cost together.
Format of the income statement
[Company Name]
Income Statement
For the [Period Ending]
Sales Revenue
– Product Sales
– Service Revenue
Total Sales Revenue
Cost of Goods Sold (COGS)
– Cost of Goods for Products
– Cost of Services
Total Cost of Goods Sold
Gross Profit (Sales Revenue – COGS)
Operating Expenses
– Selling Expenses
– General and Administrative Expenses
– Research and Development Expenses
Total Operating Expenses
Operating Income (Gross Profit – Operating Expenses)
Other Income and Expenses
– Interest Income
– Interest Expense
– Other Income
– Other Expenses
Total Other Income and Expenses
Income Before Taxes (Operating Income + Total Other Income – Total Other Expenses)
Income Tax Expense
Net Income (Income Before Taxes – Income Tax Expense)
Components of statement
Traditional income statement contain many components which are related to income and expenses. For understand and create the statement it’s necessary to know every components.
So lets start first one.
Sales or revenue
Net Sales or revenue is company generated income from the business core operations.
Normally this income comes from the sales of the product and service provided by the company’s core business.
Took a example of above we discussed, here apple selling mobile as a products and IOS system as service.
Here, net sales of apple company:
By product: 96,388
By services: 20,746
Total net sales: 117,154
Many companies have more than one income source which are categories as non operating income. So it also include in this part as mentioned non operation income.
Cost of goods sold (COGS)
As it sound, COGS is cost of selling product and service by the company at accounting time period.
It include raw material and labor work. Also it have some other cost such as shipping and other minor cost.
Here, cost of sales:
Cost of products: 60,765
Cost of service: 6,057
Total net cost: 66,882
Conclusion
So here was all information about traditional income statement.
Now your turn, comment your thoughts.