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Are items after ‘gross profit’ in the income statement must be stated in a specific order such as the higher in amount first?
The same question in balance sheet, would it matter to put cash before inventory or put bank accrued expense after bank overdraft?Hi again. There is no specific order for items within a statement of income after the gross profit line. However, in practice, companies amalgamate expenses into three basic sub-divisions.
Administrative expenses, distribution costs and finance charges (with finance income shown separately)
When it comes to a statement of financial position, the current assets should be identified and listed in “the reverse order of liquidity”. Simply put, that comes down to:- inventory, receivables, prepayments, cash at bank, cash in hand.
There is no equivalent for current liabilities
In no circumstance is “higher in amount first” the desired sequence.
Although you haven’t asked the question, I’ll answer it before you ask! In a statement of cash flows, there are three sub-divisions:- operating activities, investing activities and financing activities. In an exam answer, it is important to include the various cash flows in their correct section. However, there is no required layout within each section.
That said, it’s easier for you in an exam setting to put depreciation, amortisation and impairments together. It’s easier to put the three figures for “changes in working capital” together. And it’s easier for you to put interest paid, tax paid and dividends paid together (some publishers and the examiner too (sometimes) show dividends as a financing activity. I prefer the allowed alternative of showing dividends paid within operating activities)
OK?
You’re welcome …. and maybe next time I won’t write as much!
Keep posting 🙂
Does IAS 1 require the assets to be reported in the liquidity order? I thought it pointed out the minimum items to be reported and it would be up to the company to arrange the order? Thank you.
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