Income Statement By Function Example

Income statement by functions.

Income statement by function example. The beauty of this method is that it allows the calculation of gross profit and operating profits. In the above example the single step income statement is followed where all the incomes from various sources are totaled and all the expenses to different requirements are totaled. The important financial transactions occurring every day are report and present in the income statement. The following example shows the format of an income statement by function of expense.

For example sales revenues cost of goods sold gross profits administration expenses salary expenses interest expenses tax expenses and net profits. Suppose abc is a usa based company. The purpose of income statements. The period for which an income statement is prepared can cover a month quarter or a year of operations.

This is the method of income statement in which expenses are grouped according to their functions or classes such as cost of goods sold administrative expenses selling expenses. An income statement by nature method is the one in which expenses are disclosed according to their nature such as depreciation transports costs rent expense wages and salaries etc. An income statement example period. The expenses in an income statement are either classified by their nature or by their function.

None of the entities is given priority. The use of function method to disclose expenses still requires us to disclose the individual expenses by nature method under each function either on the face of the income statement or in the notes to the income statement. Net income is derived from the difference between the two.