CLASSIFIED INCOME STATEMENT

The presentation and classification of the Income Statement is designed to

make the financial information available to end-users and decision-makers
more:
readable
understandable
qualitative characteristics
informative
comparable
In the Income Statement, revenues and expenses can be classified to further
explain their relationship to the profit or (loss) generated by the business during
an accounting period.

CLASSIFIED INCOME STATEMENT

The formula used to design the Income Statement is:

Revenues Expenses = Net Profit / (Loss)

From the formula we can see that the income statement is made up of two main
categories:
1. Revenues
2. Expenses
There are many different formats for the income statement, just as there are
different formats for journals and ledgers. The narrative style is the more
common style of format used. This is the format we will learn and use this year.

CLASSIFIED INCOME STATEMENT

REVENUES
Revenue can be further classified into 2 sub-categories:
1. Primary revenue (main source of income for the business)
2. Other revenues (other sources of income generated by the business)
EXPENSES
Expenses can be further classified into 3 sub-categories:
3. Selling & Distribution Expenses
4. General & Administrative Expenses
5. Financial Expenses
NET PROFIT / (LOSS)
Net profit or (loss) is calculated by subtracting revenues from expenses:
6. if revenue is greater than expenses the business has generated a net profit
7. If revenue is less than expenses then the business has generated a (loss)

CLASSIFIED INCOME STATEMENT

There are 2 types of Income Statements used:
1. Service Industry
2. Trading Industry
The key difference between the 2 types of income statements is found in the
revenues section.
A Trading Income Statement has calculated into its revenues section the
following accounts:
3. Sales returns & allowances
4. Cost of Goods Sold
These 2 accounts are not found in a service industry income statement.

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THE
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