Category: 

How Do I Choose the Best Income Statement Model?

Article Details
  • Written By: Osmand Vitez
  • Edited By: PJP Schroeder
  • Last Modified Date: 18 August 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
  • Print this Article

An income statement model is the way a company prepares a financial statement for its revenues, cost of goods sold, and expenses. A model is most often necessary when a company uses computer software or some other type of electronic method to create financial statements. The income statement model a company uses can vary based on many different selection factors, a few of which are the company’s operations, financial data, and the software system in place. In addition to these models, companies must ensure they meet any national accounting standards that govern financial information. In some cases, a company will not have all the data on hand that other companies may have.

The first selection factor for an income statement model comes from the company’s operations. A hybrid model for an income statement can include the standard information — revenue, cost of goods sold, and expenses — along with other data, such as a detailed section on dividends and nonoperating income. A company can put all this information into one statement in order to have a single source of financial data. The use of a software-based system can help a company program the model to pick up certain information and place it onto the income statement. Again, certain companies or industries may only use this method.

Ad

A combined industry income statement model allows a company to prepare and issue one income statement to cover different market segments. The information on the income statement is the same as any standard financial statement that declares a company’s profit. The combining of industry information, however, either presents different lines for each segment of the company or individual sections for each industry. For example, a different section is on the statement for revenues, cost of goods sold, and expenses — all industry related. Separate sections may be on the income statement for items such as dividends, capital gains or losses, and other one-time accounting items.

Supplementary income statement models tend to have information on them that may or may not be standard for companies. The additional information can provide a further look into a company’s operations and help internal users make decisions. Formally, the supplementary income statement model is not generally for public use. National accounting standards dictate the use of this statement for internal purposes; for example, internal stakeholders may be able to have financial reports generated for a given purpose. The information may not be extremely helpful in a long-term sense as the data is often time sensitive.

Ad

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email