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Income Statement Formats
In the Income statement, there is a standard format that is used while preparing the Income statement of the company, which reports the sales revenue figure of the business at the start, then adds other income into it; after that, all the business expenses are deducted from the total amount of revenue and other income generated and finally we get the amount of net profit/loss of the business entity.
Different countries have different formats of filing their income statements under different accounting standards. The basic premise of an income statement is to provide a clear picture of the transactions made by the company and net revenue. Therefore, it is always advisable to follow the standard prescribed by the accounting bodies of that particular country.
Income Statement Formats Explained
An income statement is the statement of a particular organization's income incurred over a certain period.
The income statement comprises the company's revenue (amount of money made from sales of goods), cost of goods sold (cost of producing the goods), gross profit or loss (this amount is calculated as the difference between the revenue and the cost of producing the goods), operating expenses (the amount of money spent in general operations and maintenance of business) and operating income (this amount is calculated as the difference between the revenue and the total amount spent in producing the goods and maintaining the business).
A comprehensive income statement format is calculated as the difference between the revenue and all expenses. There are many different accounting regulations worldwide that are universally accepted by all the countries in the world and maintain standardization so that they maintain globally to keep parity and consistency. Let us understand the format for income statement in detail.
Income Statement Video Explanation
Types
The format for income statement can be of two types, single-step and multi-step. Let us explain them in detail.
Single Step Format:
In this format, the statement displays a summary of the financial performance of the business over a specific time period. It is a very simple format and has a few line items. It is easy to understand and interpret. The main revenue heads include sales revenue, investment income and revenue from interest.
The expense category has the heads depreciation, cost of goods sold, employee salaries, rent and utilities. The overall equation is:
Net income = (Revenue + Gains) - (Expenses +Losses)
Multi Step Format:
It has a number of levels and more detail. It has separate detail for accounting the operating and non-operating revenues and expenses.
It uses a number of equations to calculate operating income, gross profit and net profit.
Formats In Different Countries
US Based Company
Each country has different regulations under which comprehensive income statement format is compiled for registered companies. Similarly, the USA has rules and forms for listing companies' income statements. In the USA, as per the ruling of the Securities and Exchange Commission (SEC), publishing consolidated income statements quarterly is mandatory. Stand-alone income statements are different from consolidated ones. For an investor to make the right decision, a company must issue a consolidated financial information (including the parent company and subsidiaries). Accounting policies need to be maintained while preparing an income statement.
- For preparing comprehensive income statement format under GAAP, a company must have a majority (more than 50%) voting power in another company.
- If your business holds 20% to 50% equity, then the income statement must be reported in the equity method. According to GAAP, in consolidated statements, equity portions should be removed.
- Non-controlling interests should be used in subsidiaries that are not fully owned. While preparing the consolidated income statement, if the parent company's revenue is the subsidiary's expense, it should be removed.
In the US, publicly traded companies must file their GAAP income statements. However, a comparative study between GAAP and non-GAAP accounting standards for US companies such as Pegasystems in 2014 and 2015 occurred due to adjustments regarding acquisition and restructuring of expenses, amortization of acquired assets, equity-based compensation expenses, and other technicalities.
| 2015 GAAP | 2015 Non-GAAP | |
|---|---|---|
| Total Revenue | $682,695 | $682,695 |
| Net Revenue | $36,322 | $63,960 |
| Diluted Earnings per Share | $0.42 | $0.72 |
UK-Based Companies
In the UK, companies have been using the International Financial Reporting Standard (IFRS) for filing income statements since 2005. When EC Regulation 1606/2002 became effective. This IAS Regulation required companies with securities (debt or equity) trading in the UK regulated market to use IFRS to file their income statements. The IFRS was endorsed by the European Union, of which the UK was initially a part. All domestic companies whose securities trade in the regulated market must use the IFRS standard adopted by the EU in their consolidated income statements. Foreign companies operating in the EU may use a standard that is equivalent to the IFRS in the UK.
The Companies Act 2006 allows companies (except charities) to prepare their consolidated and individual income statements according to the IFRS or UK GAAP standards. Companies that are charities may continue to use UK GAAP. If companies are preparing individual and consolidated income statements, then the choice of abiding by UK GAAP and IFRS remains separate. However, under Article 4 of the IAS Regulation, some companies are to use IFRS for their consolidated financial statement.
Indian Companies
In India development of accounting standards involves a process following the guidelines of the Accounting Standard Board (ASB) of the Institute of Chartered Accountants of India (ICAI).
The components of financial statement in India consist of the following:
- Balance Sheet: The Balance sheet shows the value of economic resources controlled by an enterprise, as well as the liquidity and solvency of that company.
- Statement of Profit and Loss: Profit and Loss is part of the financial statement that lays down the basics of the enterprise's functioning.
- The Cash Flow Statement: draws a picture by which you can determine the income and how it is used in the company
- Notes and Schedules: this part consists of supplementary information explaining different modules of the income statement.
A company's comparative income statement format in India is prepared to keep in mind that the entity will continue operating in the foreseeable future without curling the scale of operations. Therefore, the financial statement should be prepared lucidly so that it is understandable by all stakeholders, such as investors, employees, creditors, government agencies, and even the public. Therefore, the income statement in India consists of information that only affects the economic decisions of the company.
Examples
Let us look at some examples to understand the comparative income statement format.
Example #1
source: Starbucks SEC filings
Under IAS 27, a consolidated income statement is compiled by taking the parent company's financial statements and its subsidiaries. If transactions have happened within the group, then it is mandatory to consider all of that. Also, the parent company's investment in the subsidiaries is considered.
While calculating minority interests, there are two things to consider.
- Firstly, a non-controlling interest of the subsidiaries in the profit and loss is to be identified.
- Secondly, the non-controlling interest of each subsidiary should be calculated separately from the parent's ownership in them.
Keep in mind that filing the income statement, the date for the parent company and the subsidiaries should be the same.
source: Starbucks SEC filings
US companies usually follow GAAP accounting principles while filing income statements.
Example#2
source: Nestle.com
Example #3
source: Reliance Annual Report
Format In Excel
Many websites offer free income statement format in excel for downloads, which makes it easier for businesses to prepare financial statement. They are in an excel format. One of them is vertex42.com.
It is also possible to download this income statement format in excel here - Income Statement Excel Template
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