Conceptual Framework
Income Statement
Income Statement Expenses of general accounting and credit
Is a formal statement showing the financial department
performance of an entity for a given period of time. Office supplies used.
(Measured in terms of the level of income) Certain taxes
Financial performance a.k.a. results of Contribution
operations of the entity. Professional fees
Transaction approach – traditional preparation Depreciation off office building and office
equipment
of the income statement in conformity with
Amortization of intangible assets
accounting standards.
3. Other Expenses
Income, gain, losses, and net income Loss on sale of trading investments
IS predicts future performance and ability to Loss on disposal of property, plant, and
generate future cash flows. equipment
Loss on sale of noncurrent investment
Source of Income Casualty loss – flood, earthquake, fire
Sales of merchandise to customers
- sales returns, allowances, and discounts Forms of Income Statement
- SRAD – GROSS SALES = Net Sales PAS 1, PARAGRAPH 99: entity shall present an
Rendering of services analysis of expenses using a classification based on
- professional fees, media advertising either the function of expenses or their nature
commissions, admission fees, and tuition fees. within the entity, whichever provides information
Use of entity resources that is reliable and more relevant.
- interest, rent, royalty, and dividend income
Disposal of resources other than products 1. Functional Presentation
- gain on sale of investments classifies expenses according to their function
- gain on sale of property, plant, and as part of cost of goofs sold, distribution cost,
equipment. administrative expenses and other expenses.
a.k.a. cost of goods sold method.
Components of Expense an entity uses this presentation shall disclose
Cost of goods sold or cost of sales. additional information on the nature of
Distribution costs or selling expenses. expenses, including depreciation, amortization,
and employee benefit costs.
Administrative expenses
2. Natural Presentation
Income tax expense
referred to as the nature of expense method.
expenses are aggregated according to their
Classification of Expenses nature and not allocated among the various
1. Distribution Cost functions within the entity.
Salesmen’s salaries in other words, the expenses are no longer
Salesman’s commissions classified as cogs, distribution costs, admin
Traveling and marketing expenses expenses, and other expenses.
Advertising and publicity EXPENSES WITH THE SAME NATURE IS
Freight out GROUPED AS ONE ITEM.
Depreciation of delivery equipment and store
equipment
2. Administrative Expenses
Doubtful accounts
Comprehensive Income
Office Salaries
Expenses of general executives
1
Is the change in equity during a period resulting
from transactions and other events, other than
changes resulting from transactions with owners in
their capacity as owners.
Components of profit or loss or income and
expenses affecting net income.
Components of other comprehensive
income.
(Starts with net income or loss +- the components
of other comprehensive)
Other comprehensive income comprises items of
income and expense that are not recognized in
profit or loss or now shown in the traditional
income statement.
PURPOSE: provide more comprehensive
information on financial performance measured
broadly than the income as traditionally computed.