The statements are visible to paying members.
NOTE: The results of models A and B may be different because costs and inventories are valued differently.
Model A
The Income Statement reports separately
- the value of the inventory variance from the beginning of the year to the year-end. This value is based on direct costs only. Indirect costs such as overhead are not taken into account.
- the cost of purchases during the year, regardless of whether quantities have been sold
- indirect costs and other expenses incurred in the year
In this type of Income Statement costs and expenses are reported by their nature (purchases, personnel, labor..) as opposed to their function (sales, distribution..).
Model B
Appropriate for manufacturing businesses. The Income Statement reports the Cost of Sales. Specifically, it reports the cost of quantities sold. Costs are presented by their function as opposed to their nature.
Cost of sales is calculated by allocating to the sold quantities a portion of the overall production costs (both direct and indirect production costs). The remaining production costs, which are attributed to the unsold quantities, are valued as inventory and, eventually, expensed as inventory write-offs. Inventory is reported on the Balance Sheet statement, i.e. it is not part of the profit & losses of the year.
