Parts of an Income Statement, Part 2
Of course profit and cost of goods sold expense are the two most critical components of an income statement, or at least they're what people will look at first. But an income statement is truly the sum of its parts, and they all need to be considered carefully, consistently and accurately.
In reporting depreciation expense, a business can use a short-life method and load most of the expense over the first few years, or a longer-life method and spread the expense evenly over the years. Depreciation is a big expense for some businesses and the method of reporting is especially critical for them.
One of the more complex elements of a an income statement is the line reporting employee pensions and post-retirement benefits. The GAAP rule on this expense is complex and several key estimates must be made by the business, such as the expected rate of return on the portfolio of funds set aside for these future obligations. This and other estimates
affect the amount of expense recorded.
Many products are sold with expressed or implied warranties and guarantees. The business should estimate the cost of these future obligations and record this amount as an expense in the same period that the goods are sold, along with the cost of goods expense. It can't really wait until customers actually return products for repair or replacement, should be forecast as a percent of the total products sold.
Other operating expenses that are reported in an income statement may also have timing or estimating considerations. Some expenses are also discretionary in nature, which means that how much is spent during the year depends on the discretion of management.
Earnings before interest and tax (EBIT) measures the sales revenue less all the expenses above this line. It depends on all the decisions made for recording sales revenue and expenses and how the accounting methods are implemented.
Terms of Use for this Private Label Article
Possibly Related PLR Articles:
Houston Museum of Natural Science Went Viral
The Houston Museum of Natural Science (HMNS) was one chosen to showcase the world-famous Exhibition for the Lord of the Rings Trilogy. HMNS quickly realized that while the exhibit was expected to generate a great deal of interest, it didn't have a...read more
Handling Conflict about Rules Enforcement at Home
Some parents may worry that setting strict rules may distance them from their children. But this simply isn't the case. Though they may gripe and complain and get upset when you become the enforcer, they realize deep down that this shows you care....read more
The Importance of the 12 B vitamin
The 12 b vitamin is one of the b vitamins that are essential to maintain a healthy body. Otherwise known as Cobalamin, the 12b vitamin is needed for the processes to convert the carbohydrates, fats and proteins from food into energy. 12 b also, more...read more
Ideal Offers For Credit Cards
With many people, looking for the best credit is a very tough task. Even though there really is no "best" credit card, there are credit cards out there that are the best for you. There are many different types of credit cards available, some that...read more
Cure through Yoga
Yoga in a popular position Yoga, one of the world's oldest forms of exercise, is experiencing a rebirth in our stressful modern world. You wouldn't think that a 3000-year-old exercise could increase its popularity. But yoga is now being prescribed...read more
Norton Internet Security 2007: The New Generation in Internet Security
The Internet is a place where people communicate at a very cheap price. It is where people now do their shopping, do business and trade in the financial market. This is why the Internet is considered as one of the most important tools in the new...read more
Divorce - How to rebuild your life, improve your body exercise
When it comes to divorce, it can be very painful. It is one of the most challenging things that you may ever go through in life and it's ever harder when you have children in the mix. Divorce can also be seen as an opportunity to start a new life....read more
Tips on How to Become a Fitness Model
Everyone is busy. But considering what is at stake, making time for exercise needs to be a priority right now. Thirty minutes a day is not too much when you get right down to it. Cut one prime-time show out of your evening television-viewing...read more
Herbs improving your Personal Life
Herbs are an option we have that treats misaligned joints. We use natural herbs to improve health. Herbs can be grown in your backyard. You can buy them in the grocery stores or a health stores. People even grow herbs in their kitchen window.
...read more
How to Learn More about Your International Airport
When scheduling a flight, whether that flight be domestic or international, all passengers are advised to familiarize themselves with the airport that they will be flying out of, as well as the airline that they will be flying with. Unfortunately,...read more