 in this presentation we will take a look at an income statement for a manufacturing company we're going to first take a look at the standard structure for an income statement so that we can then compare and contrast it to a cvp or a contribution margin support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need then can be done on a youtube page we also include added resources such as excel practice problems pdf files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it income statement so this is going to be the standard type of income statement that we will compare and contrast to we're going to generate this from a trial balance the only reason we're going to have the trial balance here is to see that we have something that is in balance that will then make into the income statement just to give us some awareness or remember the fact that the income statement is going to be part of the financial statements which of course will include the balance sheet and the income statement when we consider the full depletory accounting system we're thinking of these these items being linked together so a very simplified trial balance all we have is cash on the balance sheet and accounts payable assets liabilities then and then we got the retained earnings and then we have where we are focusing in on here this is all balance sheet stuff the income statement where we have the revenue the direct materials the direct wages the sales commission the taxes the maintenance depreciation and so on revenue then minus the expenses given us this net income 72 270 revenue in our case being a credit represented with brackets the expenses being debits represented with non-bracketed numbers and the credit here minus all the expenses gives us the income not a loss credit balance of 72 270 all of the debits and credits from the cash on down to the tax to the income taxes would add up to zero the debits minus the credits add up to zero so we are concentrating here we're just going to take these numbers and put them into the structure of a standard type of financial statement income statement something that would be close to generally accepted accounting principles then compare and contrast that to cvp or a contribution margin type of income statement in future presentations so the income statement would typically start off with revenue for a manufacturing company might be called sales but it would be revenue income sales that of course is just pulling over the revenue numbers we're pulling over that number removing the credit putting it into a plus and minus format here we're going to put it on the outside because we're going to have some subtotals that will be then generated then we have a subcategory typically in a normal financial statement we're not going to see this in a contribution margin type of income statement we will see it in a generally accepted accounting principle type of income statement grouped by category not by behavior of cost as we will see in a contribution margin that category being cost of goods sold the category related to the inventory the cost of the inventory of the things that we are selling that's going to include notice the colon again means that we're going to indent it have some type of subcategory it includes the direct materials that's part of the inventory it's going to be pulled into the inside because it's going to be a subcategory which we will then put to the outside with the cost of goods sold once we've completed it and then we're going to have the wages so we've got the wages that's going to be part this is direct wages part of the wages that were on the materials that we are producing then we had the overhead so the overhead is going to be part of the costs of the production and remember that's the bucket of everything else that we're going to put into the into the production that doesn't fit directly into the direct materials and direct wages or in other words for the job cost system it doesn't fit directly into the job process cost system it doesn't fit directly into any particular process but it should be applied out to them and that's going to include most of the things that we see in a problem if it says something that it's a factory involved in it so here we have the taxes on the factory so we're going to add that in there it's going to be 13 500 then we've got maintenance on the factory we'll say that's 27 000 and then we have depreciation 87 000 and then lease we're going to say it's 27 000 on the factory that's 154 500 so 154 500 and then if we add those up then the 247 950 the 387 150 and 154 500 is going to be the total cost of goods sold remember that's related to the grouping of the items for the inventory that we sold that's going to give us the gross profit now we're in the outer column revenue minus the total cost of goods sold is what's going to give us that gross profit it's going to be a very important number for manufacturing companies because we want to know the relationship of the costs related to the inventory and the revenue then we're going to take out from that the operating expenses which includes selling expenses and administrative expenses we typically group once again by the category by what it's for what is it what's the purpose of the expense so in this case we've got the sales and commissions so we're going to say that 95 7 we then have a rent on the sales office that's going to be the 77 000 so here's the 77 000 then we're going to have the total selling expenses the total selling expenses will put into the outer column that being the 95 7 plus the 77 000 for the 172 700 we're going to break that out into the outer column next we're going to have the type of category of the administrative type of expenses once again grouping these items by what they do what their function is administrative salaries of the 107 and it will include the rent on the administrative office of the 50 000 the 107 the 50 000 that adds up to the 157 000 for the administrative expenses we put into the inner column now those these are both going to be operating type expenses so if we add up the 172 7 plus the 157 000 that's going to give us the total operating expenses of 329 700 we're now in this outer column we left off in the outer column at the gross profit now we're going to subtract out the uh selling the operating expenses which of course included the selling expenses and administrative the 172 7 the 157 000 or the 329 7 so only two numbers we deal with here here minus here that's going to give us the in the income before income taxes 120 450 and then we calculate the taxes on it to give us the 72 740 bottom line net income so it's going to be the standard type of income statement very useful very good to tell us what happened in the past also great for grouping this information by the purpose what did we have these expenses for in order to help us to generate that revenue what's the category of what it helped us to do in order to get to that goal of revenue generation what it's not good for is that projection into the future because of the grouping that we had to use in this format to group by what it's for we had to group things that behave differently as we change the level of project production and therefore when we project into the future and we start to do the analysis in terms of what if analysis i would call it basically what if we made this many units what if we sold this many units we can have an infinite number of types of projections that we can have into the future we can't manipulate this income statement as easily for those types of projections it would be much easier for us to do so if we then group this type of financial data into more of a contribution margin type of income statement a cvp analysis type of income statement one that can be easily manipulated with very few factors to then change that we can this basically automate the change as we go forward so that we can run many different scenarios that's what will be comparing this traditional income statement to in future presentations