Income statement accounts

Income statement accounts are those accounts in the general ledger that are used in a firm’s profit and loss statement. These accounts are usually positioned in the general ledger after the accounts used to compile the balance sheet. A larger organization may have hundreds or even thousands of income statement accounts, in order to track the revenues and expenses associated with its various product lines, departments, and divisions. The income statement accounts most commonly used are as follows:

• Revenue. Contains revenue from the sale of products and services. Could be segregated into additional accounts to record sales for particular products, regions, or other classifications.
• Sales discounts. This is a contra account, containing discounts granted to customers from the gross sale price.
• Cost of goods sold. Contains the cost of manufactured goods or merchandise sold during the period. Could be segregated into additional accounts to record the costs of direct materials, direct labor, and factory overhead.
• Compensation expense. Contains the costs of salaries and wages incurred during the reporting period for all employees. This includes bonuses, commissions, and severance pay.
• Depreciation and amortization expense. Contains the periodic depreciation and amortization charges associated with tangible and intangible fixed assets.
• Employee benefits. Contains the employer-paid portions of the costs of numerous benefits, such as medical insurance, life insurance, and pension plan contributions.
• Insurance expense. Includes the recognized cost of insurance, such as for building insurance or general liability insurance.
• Marketing expenses. Contains the costs of a variety of expenses, including advertising, publications, and brochures.
• Office supplies expense. Contains the costs of all incidental supplies incurred by the business that are not related to production activities.
• Payroll taxes. Contains the employer-paid portions of payroll taxes, such as social security.
• Professional fees. Contains the costs of auditors, attorneys, and consultants.
• Rent expense. Contains the cost of lease payments on facilities and land being leased by the entity.
• Repairs and maintenance expense. Contains the costs of all repair and maintenance activities incurred by the business that are not related to production activities.
• Taxes. Contains property taxes, use taxes, and other taxes charged by local governments.
• Travel and entertainment expense. Contains the costs of all airfare, mileage reimbursement, hotels, and related expenses incurred by employees.
• Utilities expense. Contains the costs of telephones, electricity, gas, and so forth.
• Income taxes. If the entity is subject to income taxes, the amount is recorded in this account.

An organization located in a unique industry may find that it requires additional accounts beyond the ones noted here. Alternatively, they may find that certain accounts are of no use. Thus, the exact set of income statement accounts used will vary by company.

Presentation of Income Statement Accounts

Not all income statement accounts will appear separately on a reporting entity’s income statement. When an account contains a small ending balance, it may be aggregated with the balances from other, similar accounts and then included in the income statement as a single line item. The following exhibit contains an income statement that could have been derived from several hundred income statement accounts.