The operating income statement goes beyond the limitations of official financial accounting
Through the operating income statement greece email list we can follow the evolution of our business and show it to interested third parties in a useful way.
The formal structure of the profit and loss account used to present the annual accounts is not, generally, the most functional for the company. Let us consider that, in essence, its main mission is to provide information to third parties.
Share!Start of marked textWe give you the keys to understanding all the concepts that are part of an operating income statementEnd of marked text
In this post we will try to analyse the key aspects of the income statement for management in a non-industrial SME . That is, focusing on one whose activity is the purchase and sale of goods.
A more operational profit and loss account
Although not strictly necessary, it is advisable to have a more operational account to analyse the results based on the costs and expenses incurred by the activity. The latter is intended to give a more specific explanation of how these affect the company's potential profits or losses. Below is an example of an operational income statement:It also states that the highest and best use that would be given to an asset must be taken into account. This use can be given to it by the company or by a hypothetical third party that acquires it, preferably in its main market.
In addition, the project introduces other modifications such as a hierarchy in the variables used in determining fair value or the regulation of the treatment of transportation costs .
Fair value and annual accounts
The impact of fair value on the annual accounts occurs, firstly, because fair value is usually a fundamental reference , although not always the only one, for the practice of valuation corrections .
For example, a fall in the fair value of a property, plant and equipment may trigger a valuation allowance because fair value is one of two references to be taken into account in calculating recoverable value (the other being value in use). If recoverable value is lower than book value, then an impairment will have occurred and must be reflected in the accounts.
The aim is to analyse whether it is appropriate to record a loss in the results of the financial year if it is observed that the fair value of an asset has decreased, which may, in many cases, be reversible if circumstances change.
On the other hand, some assets must be valued according to this criterion . Therefore, at closing , any changes that have occurred in their valuation must be reflected.
Within them there is a difference between those elements at fair value whose changes go to the profit and loss account and those in which they are recorded directly in net worth .
New developments in items valued at fair value
On the one hand, the proposed reform of the General Accounting Plan proposes a reduction in the cases in which changes in fair value are recorded directly in net equity .
Specifically, in the case of financial instruments, the draft reform proposes reducing the number of portfolios to three : those valued at amortized cost; those valued at cost less, where applicable, impairment; and those valued at fair value with changes in the profit and loss account. In addition, there are a number of special features for some financial instruments in particular.