The trading and profit and loss accounts are temporary accounts in the general ledger. The trading account shows the gross profit and is particularly useful for a trading business which buys and sells finished products as it allows the gross profit and gross profit percentage to be calculated.
Vertical analysis definition: A technique of analyzing financial statements by restating each line item (e.g. sales and marketing expenses) as a percentage of another base line item (e.g. Revenue). The horizontal analysis reports are not required by Accounting Standards, and are used more as a management tool rather than a formal reporting document.
Horizontal analysis definition: A technique of analyzing financial data by comparing one periods financial statements to another in order to spot trends in the information. The horizontal analysis reports are not required by Accounting Standards, and are used more as a management tool rather than a formal reporting document.
The income statement shows a business’s financial performance over a specified accounting period. It summarizes the income and expenses for the period resulting in either a net income or a net loss for the business.
The accounting period can be any length but for management account purposes is usually a month, and for legal financial reporting purposes is normally a year.
The multi step income statement or multiple step income statement is an income statement which arrives at a net income figure in a series of steps including, for example, gross profit, and operating income. This is in contrast to a single step income statement which deducts the total expenses from the total revenues to arrive a net income figure in one single step.