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Sub grouping of Operating Expenses
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In larger companies, operating expenses are often subdivided into selling expenses and administrative expenses, as illustrated in the income statement in Illustration 5-23. Selling expenses are those associated with making sales. They include sales promotional expenses as well as expenses of completing the sale, such as delivery and shipping expenses. Administrative expenses (sometimes called general expenses) relate to general operating activities such as personnel management, accounting, and store security.
When sub groupings are made, some expenses may have to be pro-rated, e.g., 70% to selling and 30% to administrative expenses. For example, if a store building is used for both selling and general functions, building expenses such as depreciation, utilities, and property taxes will need to be allocated.
Any reasonable classification of expenses that serves to inform those who use the statement is satisfactory. For example, the present tendency in statements prepared for management is to present in considerable detail expense data grouped along lines of responsibility.
Single-Step Income Statement
Another format for income statement presentation is the single-step income statement. The statement is so named because only one step, subtracting total expenses from total revenues, is required in determining net income (or net loss).
In a single-step statement, all data are classified under two categories:
(1) Revenues, which includes both operating revenues and other revenues and gains, or (2) Expenses, which includes cost of goods sold, operating expenses, and other expenses and losses. A condensed single-step statement for Highpoint Electronic.
