Parts of Income Statement, Part 3 deal with the identification of the details that comprise an income statement. In Parts of Income Statement, Part 3, the detailed components of the income statement of a manufacturing trade will be itemized for better understanding. The general parts of Income Statement, Part 3 in a manufacturing concern include Income, Cost of Goods Sold, Gross Profit, Operating Expenses, Income from Operations, Other Income, Other Expenses, Income before Income Taxes, Income Taxes and Net Income after Taxes, in this order.
Similar to other income statement, the initial presentation of the parts of Income Statement, Part 3 starts with the Income account. Income includes gross sales where sales returns and allowances, and sales discounts are deducted to arrive at the net sales.
This is followed-up in Parts of Income Statement, Part 3 by Cost of Goods Sold (COGS) account. The COGS are the beginning finished goods inventory added by cost of goods manufactured will give us the cost of goods available for sale. The ending finished goods actual inventory will be classified as asset and will be deducted from the cost of goods available for sale arriving at COGS.
To arrive at the Gross profit in the parts of Income Statement, Part 3, COGS is subtracted from Income.
After the Gross Profit in the parts of Income Statement, Part 3 are the Operating Expenses classified into selling and administrative expenses. Selling expenses comprise of sales salaries, payroll taxes, delivery expenses, sales supplies, advertising and depreciation. Included in the administrative expenses are officers’ salaries, office salaries, payroll taxes, office supplies, bad debts, depreciation and miscellaneous expenses.
Income from Operations is now derived by getting the difference between Gross Profit and the total amount of Operating expenses.
Next other income such as interest and dividend income are added while other expense in the likes of interest will be deducted from Income from Operations to get the Income before Income Taxes.
From the Income before Taxes, the corresponding taxes will be computed and deducted in order to get the Net Income after Taxes. Normally, the tax computed is lodged under a provisional account and will become an expense when paid.
This is the detailed presentation of the multi-step form of income statement on the parts of Income Statement, Part 3 of a manufacturing concern. This was the general contents and other account titles may still be included or might be deleted depending on the chart of accounts being used. The chart of accounts is the list of proper account names or titles being adopted by a certain business enterprise.
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Written by ja_schmidt
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