The first part of an income statement is the line reporting sales revenue.
Businesses are to be consistent from year to year about when they record sales. For example, when does an ad agency have to report the sales revenue for a campaign - after the work is completed or after the client approves it or atfre the ads appear in the media or after the billing is complete? You understand the point - these issues should be decided by a company for reporting sales revenue. And surely they must be consistent each year.
The next line in an income statement - the cost of goods sold expense.
There are three methods to report the cost of goods sold expense:
Other items of the income statement include inventory write-downs.
Inventory should be carefully inspected to determine any losses due to theft, damage and deterioration, and to apply the lower of cost or market (LCM) method. Another important component is made up by bad debts: bad debts are those owed to a business by customers who bought on credit (accounts receivable), but are not going to be paid. It is very important to understand and implement this in real life that the timing of when bad debts are reported is crucial.
Read more in Accounting Income Statement – How to Prepare Income Statement – Part 2
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