The element of factory expense in goods in process should then be handled in the factory expense section, in this way doing away with the adjustment at the end of the statement as in the other case. While this method is more difficult and complicated, it is usually to be preferred. The cost of the finished product turned out during the period, as shown by the manufacturing section, must be added to the inventory of the finished product on hand at the beginning of the period, and from the sum of these two items must be deducted the finished product on hand at the close of the period in order to develop the cost of the manufactured product sold during the period. If, now, other commodities are bought and sold in addition to those manufactured, the cost of the goods bought and sold should be shown as for a trading business.
Selling Expense and Administrative Schedules
The second schedule to be shown in support of the profit and loss statement will be the selling expense schedule. Herein will be included all the customary selling expense items, the total of which is carried on the face of the profit and loss statement. It may be desirable in some instances to omit advertising costs from this group and show them on the face of the statement as a separate item. This is a particularly desirable policy either where advertising is a large item, or where results are to be shown during an advertising campaign.
The third schedule is the general administrative items. It seems hardly worth while to attempt a separation of so-called general expense items from those of administration, as any basis of separation must necessarily be arbitrary.
The fourth schedule will show the financial management expense and income items. These are the items which are shown on the statement under the heads of “Other Income” and “Deductions from Income.”
These are the customary schedules presented. When the statement of surplus is made a part of the profit and loss statement, as is sometimes the case, and there are many detailed entries during the period direct to surplus, a final schedule should present these charges and credits to surplus during the period.
Schedules for Special Needs
It frequently happens that it is desirable to carry additional schedules to those explained, in order to show an analysis of certain earnings or operations which may be of special interest to the individual concern. Thus, it might be desirable to show an analysis of sales by departments, by geographical districts, or by branches. Similarly, expenses might be analyzed on the same basis. A branch organization, for example, might show all its activities, including the net operating profit by branches, the sum of the branch operating profits being taken into the combined profit and loss statement, after which appear the items of financial management expense and income. As heretofore stated, all these are problems concerning which no arbitrary ruling can be made, the organization of the business and the information desired being always the determining factor.
The problem of valuation as related to the commercial balance sheet has now been completed. Some miscellaneous matters of corporation accounting and finance follow and these complete the second year’s course of study.