What Does Your Income Statement Look Like? And Why Doesn't GAAP Seem to Care?
I don't know the percentage, but I'd guess at least 80% (probably 90%) of business have income statements that make no sense. These are the kind of income statements I see:
- QuickBooks default - Sometimes they even have a cost of sales section. Generally the expenses just show up alphabetically.
- Whatever was set up by the computer consultant who did the installation - At least the consultant knows how to use the report writer but they aren't always accountants and haven't a clue as to what is appropriate for the business.
- Something that was set up a long time ago - This is what I found when I became the Controller at a ready-mixed concrete company. There was an attempt at coming up with a reasonable cost of sales number, but it was still way off. It took a year of work for me to transform it to something consistent with the rest of the industry.
In an earlier post I alluded to frustration in seeing myriad income statement formats not just between industries but within an industry. For example, let's look at Darden Restaurants, owner of Bahama Breeze, Olive Garden, Red Lobster, Longhorn Steakhouse and others. They define cost of sales as including food and beverage, restaurant labor and restaurant expenses. On the other hand, Brinker International, owner of Chili's, Romano's Macaroni Grill and other concepts, doesn't define cost of sales - it has a line that is called cost of sales, but then a separate line that is called restaurant expenses. The only real difference I see between these entities is that Brinker franchises, but I don't think Darden does. But that shouldn't impact this to any significant degrees.
I also see Darden includes interest expense in total costs and expenses to get to earnings before taxes. Brinker reports an operating income that does not include interest expense, then subtracts interest expense and other items to get to income before taxes.
I decided to visit CCH Accounting Research Manager and look at GAAP specifically related to income statement presentation, and didn't find much. I saw how to show effects of discontinued operations and extraordinary items, but not much more than that. Was I looking in the wrong spot? I looked at Codification Topic 225, then subtopics 10 - 30.
This, for whatever reason, is a topic on my mind, so please let me know what you think.