Meanings of Income Statement Part II

Meanings of Income Statement Part II

Example of the total cost method

Sales € 10,000,000
+/- Increase or decrease in stocks of finished and unfinished products +/- 2,000,000 €
+ other capitalized own work + € 1,000,000
+ other operating income + € 200,000
Material costs:
– a) Expenses for raw materials and supplies and for purchased goods – € 3,000,000
– b) Expenses for purchased services – € 200,000
Personnel expenses
– a) Wages and salaries – € 4,000,000
– b) social security and pension and support expenses – € 1,000,000
Depreciation
– a) on intangible fixed assets and property, plant and equipment – € 1,000,000
– b) on current assets, insofar as these exceed the depreciation customary in the corporation – € 0
– Other operating expenses – € 2,000,000
= Operating result (EBIT) = € 2,000,000
+ Income from investments + € 100,000
+ Income from other securities and loans from financial assets + € 150,000
+ other interest and similar income + € 100,000
– Depreciation on financial assets and on securities held as current assets – € 50,000
– Interest and similar expenses – € 800,000
– Taxes on income and earnings – € 300,000
= Earnings after taxes = € 1,200,000
– Other taxes – € 0
= Annual surplus = € 1,200,000

The internal income statement

The core of the internal income statement is the cost and performance accounting, which primarily serves as a basis for decision-making by managers. In addition, financial planning and investment accounting are also part of the internal income statement.

The external income statement

In contrast to the internal income statement, the external income statement is aimed at institutions such as banks and the tax office that are outside the company. This also includes, for example, the shareholders. It comprises the entire financial accounting including the annual financial statements and the tax income statement.

The tax income statement

According to aviationopedia.com, the tax income statement corresponds to the tax balance sheet. This is required to determine the tax base.

Tip!

Your head will be spinning now, but don’t worry, accounting software will relieve you of a large part of this burden. Comprehensive evaluations of the income surplus account enable you to keep an eye on your company’s success. The direct interface to your tax advisor also enables you to work together without any problems.

The short-term income statement

The short-term income statement is also called cost unit time calculation. It shows the company’s sources of success. This means that the products or services that are particularly successful or are less successful can be identified in this way. The more detailed the cost unit time calculation, the better you can plan the success of your company.

In operational practice, two methods are used in the short-term income statement:

  • the total cost method
  • the cost of sales method

Both have already been dealt with in detail. So you see, it’s not that difficult at all. The quality of your cost unit time calculation depends on the informative value of your data. You get this data from your monthly profit and loss accounts. The more precisely you book your data, the better you can plan and control your success. The monthly financial statements should contain such important data as depreciation, imputed costs and accruals for expenses and income.

Why is the short-term income statement needed?

One of the most important tasks in accounting is determining the company’s success. This is done by comparing the expenses with the income. However, this is not enough for effective monitoring of success.

The reasons:

  • The accounting period of usually one year is simply too long for short-term success analysis. It takes short periods to be able to actively influence success.
  • The operating profit is determined in the short-term income statement. However, neutral expenses and income are not required for this. However, these are included in the income statement.
  • The entire effort is not shown in the income statement. Therefore, they do not match the total cost. For example, the imputed costs are missing.
  • The income statement does not show which products are profitable and which are not. Production cannot be optimized in this way.

That is why there is the short-term income statement. You can also use the term operating income statement.
It is usually carried out monthly, quarterly or semi-annually. There are two ways to do this:

  • the comparison of costs and services; the difference is the operating profit
  • the comparison of the cost of goods / services sold and the revenue ; the difference also leads to the operating result.

In any case, the basis is the figures from your accounting, because it provides the costs and sales for a period to be defined. However, the cost of personal work is also included in the accounting, but there are no revenues. The costs must therefore be made comparable with the revenues. There are two ways of doing this. But you already know her.

  • The total cost method – the revenue is adjusted in relation to the total cost.
  • The cost of sales method – the total costs for the period are adjusted so that they can be compared with sales. This can be done either on a full or partial cost basis.

Coordination of the short-term income statement with the income statement

The result from the short-term income statement (KER) must be reconciled with the result of the income statement. If there are different billing periods for both, the results must be offset. There will be deviations. In order to stop any cost development that could be detrimental to the company, the management, i.e. you, must take action. The imputed cost rates, if any, must be adapted to the respective periods. That is for the informative value of the cost centers(Departments) and cost units (products / services) are particularly important. The coordination of the short-term income statement and the P&L takes place via a so-called voting bridge. The imputed and actual costs are added together and the results from the financial and extraordinary areas are added so that the balance sheet result can be calculated.

Income Statement 2