Income Statement

Income Statement

Relationship with other financial statements

SCI = IS + OCI

  • SCI: Statement of Comprehensive Income
  • IS: Income Statement
  • OCI: Other Comprehensive Income

格式

  • Rev: Revenue (Net Revenue = Revenue - Adjustments(三包费用等))
  • COGS: Cost of Goods Sold
  • Gross Profit = Rev - COGS
  • period cost/expenses
    • Selling, General and Administrative Expenses (SG&A)
    • Research and Development (R&D)
    • Depreciation and Amortization
    • …
  • Operating Profit = Gross Profit - period cost/expenses = PBIT (Profit Before Interest and Tax) (考试时等同)
  • Interest Expense
  • Profit Before Tax = Operating Profit - Interest Expense
  • Tax Expense
  • Profit After Tax = Profit Before Tax - Tax Expense = Net Income

Expense

  • Grouping
    • By nature
    • By function

Remark: Distinguish between by nature and by function

For example, a company has 2 buildings, one is used for production, the other is used for administration. The company has 2 options to record the depreciation expense:

  • By nature:
    • standalone depreciation expense
  • By function: (the cost of sales method)
    • Production: included in COGS
    • Administration: included in Period Cost

Gain/Loss

  • Gain/Loss on sale of PPE(PPE: Property, Plant and Equipment, 不动产、厂房设备等)

Remark: PBIT includes non-recurring gains and losses, while operating income does not.

Net Income

  • $ \text{Net Income} = \text{Revenue} - \text{ordinary expenses} + \text{Gains} - \text{Losses} + \text{other income} - \text{other expenses} $

Multiple-step income statement vs single-step income statement

  • multiple-step income statement

    • 有多个步骤，比如先算出 Gross Profit, 再算出 Operating Income
    • 适用于复杂的公司

  • single-step income statement

    • 一步到位，直接算出 Net Income
    • 适用于简单的公司
    • 没有 Gross Profit, Operating Income 等概念

The Line

Net Income from Continuing Operations

  • Above the line: tax is reported separately
  • Below the line: tax is included in the calculation of net income

Recognizing Revenue

  • Under the accrual basis of accounting, revenue is recognized when:
    • the earnings process is complete or virtually complete
    • there is reasonable certainty as to the collectibility of the asset to be received (cash or receivable)