Parts of an Income Statement
The first and the most vital part of an income statement is the “line reporting sales revenue.” Businesses need to be at a consistent level with every passing year regarding when they record sales. For some business, the biggest problem faced by them is the timings of recording sales revenue, especially when the approval from their client depends on performance tests or other matters that have to be satisfied by hook or by crook.
For example, tell me when does an ad agency report the sales revenue for a campaign that the agency has planned for its client? When all the task is over and sent to the client for further acceptance? And when the client finally agrees to it? When the ads appear in the media? Or when the billing procedure is complete? These are the various things and concerns a company must decide on for reporting sales revenue, and they must act on a consistent level each year, and the timing of reporting should be noted on the financial statement.
The next line in an income statement is the total cost of goods sold expense. You can report the cost of goods sold expense with the help of three methods. The first one is known as “first in-first out” (FIFO); the second one is known as “last in-last out” (LIFO) method and the last one is called the average cost method. Cost of goods sold expense forms a huge item in any income statement and how it’s reported can make a different impact every time on the reported bottom line.
Other important things that are included in an income statement are inventory write-downs. A business should check its inventory carefully and at a regular level, to monitor all kinds of losses due to theft, damage and deterioration, and to apply the lower of cost or market (LCM) method.
debts are form a very vital ingredient of the income statement. Bad debts are those owed to a business by customers but they will never pay them back. Again the timing factor for reporting these debts is really very crucial. You must take in account whether you report it before the collection efforts are exhausted or before that?