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  Additional Issues

Introduction to Additional Issues

Having set out the major principles included in preparing an income statement, we required to consider some additional points.

Cost of sales

The cost of sales or also termed as cost of goods sold figure for a period can be recognized in dissimilar ways. In a number of businesses, the cost of sales amount for each individual sale is recognized at the time of the transaction. Each item of sales revenue is strongly matched along with the appropriate cost of that sale and that is why for identifying the cost of sales figure for addition in the income statement is not a difficulty. Several large retailers (for instance, supermarkets) contain point-of-sale (checkout) devices which not only record each sale but also concurrently pick up the cost of the goods that are the subject of the specific sale. Other businesses which sell a comparatively small number of high-value items (for instance, an engineering business which produces custom-made equipment) also be apt to match sales revenue along with the cost of the goods sold, at the time of the sale. Though, some businesses (for instance, small retailers) do not generally find it practical to match each sale to a specific cost of sales figure because the accounting period progresses. So instead they recognize the cost of sales figure at the end of the accounting period.

Classifying expenses

The classifications expenses for the revenue and expense items like with the classifications of several assets and claims in the statement of financial position are frequently a matter of judgement through those who design the accounting system. So, the income statement could have involved the insurance expense along with the telephone and postage expense within a single heading - say, 'general expenses'. Such types of decisions are generally relies on how helpful a specific classification will be to users. This will generally mean that expense items of material size will be displayed separately. Like limited companies for businesses that trade though there are rules that dictate the classification of several items appearing in the financial statements for external reporting purposes.

The accounting period

Already we have observed that for reporting to those outside the business, a financial reporting cycle of one year is the norm, even though some large businesses produce a half yearly, or interim, financial statement to give more often feedback on progress. For those who control a business, though, it is possibly important to have much more common feedback on performance. So it is fairly common for income statements to be ready on a quarterly, monthly, weekly or even daily basis in order to depict how things are progressing.

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