Cost Accounting: Profit and Loss Calculation

Cost Accounting: Profit and Loss Calculation

This course is part of Cost Accounting Specialization

Instructors: Gunther Friedl

What you'll learn

You will learn different methods of preparing an income statement.
You will learn to explain why different methods yield different profit numbers.
You will learn to choose the best-suited method for your decision situation.

Skills you'll gain

Accounting

Details to know

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Assessments

11 assignments

Taught in English

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This course is part of the Cost Accounting Specialization

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There are 3 modules in this course

Companies do not only need to know the costs of different products, but they also need to know whether they gain a profit or realize a loss. We explain how companies use cost information to calculate their profit and assess their profitability. Depending on how companies account for changes in inventories, we distinguish "absorption costing" and "variable costing". In addition, some companies structure their income statement according to the "nature of expense method", while others structure it according to the "cost-of-sales method". We explain both methods and discuss their advantages and disadvantages.

Companies do not only need to know costs of different products, but they also need to know their operating income - did we make a profit or did we face a loss? To calculate the operating income, companies prepare an income statement that compares total revenues and total costs. In this module, we show you how companies prepare income statements to link costs and revenues and to assess the company’s profitability.

What's included

3 videos4 readings4 assignments

3 videosTotal 16 minutes

Tasks of profit and loss calculation4 minutesPreview module
Nature of expense method7 minutes
Cost-of-sales method4 minutes

4 readingsTotal 24 minutes

Course Overview2 minutes
Introduce yourself!10 minutes
Lecture slides for this course2 minutes
The triple bottom line10 minutes

4 assignmentsTotal 28 minutes

Cost-of-sales vs. nature of expense method6 minutes
The tasks of profit and loss calculation6 minutes
Nature of expense method8 minutes
Cost-of-sales method8 minutes

Depending on how companies account for changes in inventories, we distinguish "absorption costing" and "variable costing". In addition, some companies structure their income statement according to the "nature of expense method", while others structure it according to the "cost-of-sales method". We explain both methods and discuss their advantages and disadvantages.

What's included

4 videos4 assignments1 discussion prompt1 plugin

4 videosTotal 22 minutes

Comparison of income statements and financial accounting1 minutePreview module
Comparing operating income under absorption and variable costing9 minutes
Comparing operating income for multiple periods6 minutes
Incentives for undesirable buildup of inventory under absorption costing5 minutes

4 assignmentsTotal 54 minutes

Product costing and profit calculation20 minutes
Income statements and financial accounting6 minutes
Absorption costing and variable costing8 minutes
Absorption vs. variable costing in multiple periods20 minutes

1 discussion promptTotal 10 minutes

Inventory built-up10 minutes

1 pluginTotal 10 minutes

Income statement in financial accounting10 minutes

Many companies use contribution margin accounting to measure success instead of the income-statement formats. Contribution margin accounting is a special income-statement format that displays variable and fixed costs separately. In this module, we discuss the advantages of contribution margin accounting over traditional income statements. Further, we outline the differences of simple contribution margin accounting and multi-leveled contribution margin accounting.