THE INCOME STATEMENT

It shows the financial performance of the company during the given financial period. It discloses the income and expenses and thus the net profit for the period.

IAS 1 recommends that the income statement can be presented in 2 ways or formats:

a) By classifying by function:

Under this format, the expenses of the company are classified into 5 major categories i.e. Cost of sales, Distribution costs, Administration expenses, Other expenses, Finance cost.

b) Classifying expenses by nature:

Under this format, expenses are not classified by their nature i.e. referred to specifically according to their type and the major categories of expenses