Accounting Standards and Organizations
Generally Accepted Accounting Principles (GAAPs) are the principles, processes, procedures, and standards that govern financial accounting. These are designed to create cohesion and consistency across the business and accounting practices of diverse groups and organizations.
Similarly, International Financial Reporting Standards (IFRS) help create cohesion and expectations across financial statements. They were developed and are enforced by the International Accounting Standards Board (IASB) in the UK, but there are many other organizations and groups designed to do just the same:
- Securities and Exchange Commission (SEC)
- The Public Company Accounting Oversight Board (PCAOB)
- The International Financial Reporting Interpretations Committee (IFRIC)
Additionally, there is an Accounting Standards Update (ASU) issued by the IFRS designed to update accounting standards for new areas of revenue recognition, taxes, and the like.
Income Statement Components
Income Statements or Profit and Loss (P&L) statements show a summary of any given organization or company’s revenue, expenses, profits, and losses over a given period. Usually, their purpose is to monitor a company’s performance.
Revenue Recognition
Revenue recognition shows the sales performance of an organization. This is usually split into Operating Revenue and Non-operating Revenue. Operating Revenue will show the core of the business performance, while Non-operating Revenue will take into account things like external investments.
Cost of Goods Sold
The Cost of Goods Sold (COGS) shows the cost of producing and manufacturing goods for sale. This usually includes the cost of materials, labor, and manufacturing. This is different from Gross Profit, which determines the profit a company makes on a product after the COGS is removed.
Operating Expenses
Operating Expenses are the indirect expenses necessary to running a business, including everything from employee salaries to regular office supplies. This is essential for calculating depreciation and amortization in the long term.
Taxes
This usually includes Expenses Before Taxes (EBT) and Income Tax Expense (ITE), which are just two different ways of looking at the costs of operating within a particular tax framework.