At the end of each accounting period, companies compile financial statements. Actually, they compile them throughout the year on all occasions. These statements consist of many accounts – basically, evidence that some transactions of money occurred before.
Accounts can differ in nature, but they usually hold a number of deals of the same type. These are long lists of deals, and they’ll eventually be generalized to some degree. At the beginning of each month, all bookkeeping accounts go to a single Ledger to become a monthly report.
Accounts about profits and losses are called Income statement accounts, and they are amongst the main in most reports regarding the financial situation of a company.
What are Income Statement Accounts?
The most crucial characteristic for each company is profitability, and businesses need to estimate whether they do a good job or not. By assessing their income, organizing it into accounting statements, they get an idea of how well they continue to do in the long run.
Companies generalize both expenses and profits to different degrees. Some tend to be very thorough in their statements. Each month, they compile financial reports and include tons of specific expenditures and gains for better insight into how the business is doing.
Some are more concise and group accounts, cutting down their list to just a small number, most notably including:
- Operating profits
- Operating expenses
- Non-operating profits
- Non-operating expenses.
Types of expenditures and gains
Operating implies transactions closely associated with the business’s main line of work. Revenues and other gains are common examples of operating profits, while operating expenses usually include payrolls and expenditures such as marketing, development, or research expenses.
Non-operating transactions are those operations that don’t have much to do with the business’ day-to-day work, but still influence their activities. This can be investments, debt interests, and more.
There are also secondary expenses and profits, most notably amortization and depreciation. These represent the costs associated with equipment and other assets losing value (quality or efficiency). Besides that, there are many more account types that need to be listed.
All of these are listed somewhere in the company’s journals and other papers with all the proper details. It’s a stage of displaying them in reports that can vary from just generalized, surface information to in-depth analysis of each element – the company can even list every payment it made over the course of the month if it wants to.
The information won’t change, but the way it displays it will. So, it’s mostly done for ease of use for the company itself. By comparing account summaries taken from different time periods, it can assess if the sales, revenue, gains, losses, and expenditures grow or fall over time.
Payments are usually put on paper right after being accrued. Basically, if the payment was agreed upon, then it gets accounted for, even if the transaction itself hasn’t occurred yet. It’s called accrual accounting, and that’s how most companies in America deal with income accounts.
However, this chapter in bookkeeping is rather flexible. It’s just commonly accepted to do so, and a lot of people will expect income accounting to happen this way. Unless the company is adhering to GAAP, you should be prepared that the companies will have different approaches to this.
Some bigger companies, for instance, won’t bother putting every single transaction in the general ledger if there are just too many of them or it takes too much of their time. Instead, they will record a total sum for the category.