Income statement or profit-loss statement, as it is often stated in the accounting education literature, is a review of revenues, expenditures and financial results. The main goal of this particular subject as a part ofÂ accounting degreeÂ programs is to teach students how to mark the difference between the final financial results and those conventionally defined for a certain accounting period.
Financial results can be either positive or negative. If the result is positive, it is recorded as expenditure and if negative then it is revenue. Later on their courser of accounting education, students will learn about the establishment of balance sheet, as these results are implemented in the finalization of balance sheet.
Income statements usually come in either bilateral or unilateral review form. The very content of the income statement emphasizes its importance, because in this way it displays the actual performance of a company.
A detailed analysis of the income statement is necessary in order to gain an insight into the earning power of companies. Analysis Â of the yield possibility of company includes:
â€˘ An analysis of the structure and distribution of total income
â€˘ An analysis of the structure and distribution of business income
â€˘ Analysis of the structure of financial results
â€˘ Analysis of possible risks while going after planned financial results on one side and the bottom point of investment return.
For given input costs, given production capacity and given physical expenditures of materials, services and labor, the overall expenses are dependent of which method is used when calculating depreciation and the material which is used. All methods of calculating depreciation which overturn the bottom value of fixed assets are increasing the costs and vice versa. All methods of calculating expenses for materials that are above the value of material stocks increase the cost and vice versa.
The modern theory of calculating the expenses is made of three sub-systems:
- System for calculating the total cost
- System for calculating the production costs
- System for calculating the variable costs
When analyzing financial results, usually, a spatial and temporal comparison is performed. Temporal comparison shows the development, the actual company promotion in achieving financial results. Spatial comparison is important to assess how company stands in relation to the competition.