One of the most common user request is "How much am I earning?" This question is second only to "How much am I selling?". Often projects start just to have an efficient reply to these two questions.Notice that the two questions are only superficially similar but an ocean lays in the middle . Let's start.[//]
I'm sure you've been asked many times to create sales reports. They're important, but they describe only a fraction of reality. A company general manager is much more interested in different figures, that is the money left after paying what must be paid and collecting the credit.As you probably know, the broad definition of this figure is:
Sales - Cost = Income
Reports usually do not have one row (albeit some widgets from famous BI players provide what's exactly one row of data), but are drawn in the form of the income statement. A traditional income statement, for a commercial company, may look like this:
Probably you've already seen this or something similar around or in a book. This is the classical income statement that the company CFO prepares at the end of the year. For example, find here the Microsoft Income Statement. You will likely not be asked to create this because the accounting systems already produces it and it is carefully adjusted by hand on Excel before being validated by the board. For a "no frills" detailed description you can go here.
Before moving on, nonetheless, there are two key aspects I want you to notice.
This is a scalar report, that is, starts from a value, subtracts other values, has intermediate totals and ends with a much lower value. The business meaning of this is that the Revenues are "consumed" by costs and expenses and what's left is the "money" (it is not exactly true but I skip by now) available to be pocketed or reinvested.
This statement refers to a whole year, that is, summarizes Facts which took place in 2009 or, somehow, pertain to 2009. The word "pertain", hides the accounting accrual concept. I've read very long chapters about it but the point you need to get is very simple: costs pertain to the period when the associate resource has been consumed. Simpler: the cost of goods sold is accounted in the same period as the sale.
An income statement like this depicts company business in little detail. It's ok, more or less, for Wall Street financial analysts and it says that, yes, somehow, in 2009 you should end up with more money than in 2008; but does not tell so much about how actually running the business. In the next chapter we'll see what a chameleon the Income Statement is.
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