Income Statement Form and Classification.

Abstract A recent development surrounding income statement theory has indicated a trend toward a single-step form of presenting current income and cost data. This development, of course, is significant within itself, but in addition it has served to focus attention on the much broader problem of isolating principles of income statement form. The purpose of this study is to discuss critically some of the current problems of form. Also in the study, the traditional methods of classifying costs and revenues are evaluated, and alternative methods are suggested. The paper presents some of the working rules upon which a sound income statement can be based. The rules developed which appear to be tenable are: (1) Problems of form should be solved through a continuing analytical approach. Existing conventions, accepted ways of doing things, should be analyzed and changed, where current goals are not being attained. (2) The basic nature of the economic system in the United States supports the concept that there should be no ranking of costs, but that decisions are resultant of cost and revenue classification. The single-step form is desirable, therefore, unless special usefulness is created through departure from the single-step form. (3) Useful methods of classification include (a) functional classification, (b) object classification, and (c) management efficiency or economic classification. (4) Accounts should be designed to facilitate conduct of future and current affairs of the business. Financial statement information should be incidental to the construction of accounts rather than the sole purpose of account construction. (5) Uniform reporting should be encouraged for statements prepared for similar purposes within similar industries to aid in making comparisons.