Page 251 - Accounting Principles (A Business Perspective)

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were actually shoplifted during the year. If such goods had not been stolen, the ending inventory would have been
USD 62,000 and the cost of goods sold only USD 138,000. Thus, the USD 140,000 cost of goods sold calculated
under periodic inventory procedure includes both the cost of the merchandise delivered to customers and the cost

of merchandise stolen.

An accounting perspective:

Uses of technology

Many companies are building private networks to link their employees, customers, and suppliers
together. These networks within the Internet are referred to as companies' intranets. The Internet
can be likened to the entire universe, while an intranet can be likened to a solar system within the
universe. A company's intranet is built to be secure from outside users. For instance, these
networks are designed to be secure against "hackers" and other unauthorized persons. The intranet
software typically encrypts data sent over the Internet to safeguard financial transactions.

Classified income statement
In preceding chapters, we illustrated the unclassified (or single-step) income statement. An unclassified

income statement has only two categories—revenues and expenses. In contrast, a classified income
statement divides both revenues and expenses into operating and nonoperating items. The statement also
separates operating expenses into selling and administrative expenses. A classified income statement is also called a
multiple-step income statement.
In Exhibit 39, we present a classified income statement for Hanlon Retail Food Store. This statement uses the
previously presented data on sales (Exhibit 35) and cost of goods sold (Exhibit 38), together with additional
assumed data on operating expenses and other expenses and revenues. Note in Exhibit 39 that a classified income
statement has the following four major sections:
• Operating revenues.

• Cost of goods sold.
• Operating expenses.
• Nonoperating revenues and expenses (other revenues and other expenses).
The classified income statement shows important relationships that help in analyzing how well the company is
performing. For example, by deducting cost of goods sold from operating revenues, you can determine by what
amount sales revenues exceed the cost of items being sold. If this margin, called gross margin, is lower than desired,
a company may need to increase its selling prices and/or decrease its cost of goods sold. The classified income

statement subdivides operating expenses into selling and administrative expenses. Thus, statement users can see
how much expense is incurred in selling the product and how much in administering the business. Statement users
can also make comparisons with other years' data for the same business and with other businesses. Nonoperating
revenues and expenses appear at the bottom of the income statement because they are less significant in assessing
the profitability of the business.

Accounting Principles: A Business Perspective 252 A Global Text