Definition of operating account
The income statement is the accounting document that expresses the profits or losses obtained by a company in a given period of time. Its two components are the operating account and the financial results account, from which it will be necessary to subtract, where appropriate, the tax on profits to arrive at the final result of the period.
In this sense, the operating account will reflect only the result obtained by the company in the development of its own activity, obtained as the difference between income and operating expenses; thus, it does not take into account the financial structure that allows the development of the business, and that reflected in financial income and expenses, gives rise to the financial result independently.
Operating account structure
• Operating income
It is the income obtained by the company related to its usual economic activity when carrying out its corporate purpose. For example, sales and income from the provision of services, operating subsidies, capital subsidies attributable to the year, the work that the company carries out for its own fixed assets, and other management income, such as rentals, commissions, etc. It also includes profits generated from the sale of non-current assets and from the sale of long-term holdings in related parties. And it includes, finally, the positive differences that occur for the company between liabilities incurred and their subsequent settlement, and the recovery of the value of assets that, having previously had recognized losses, now have to be cancelled.
• Operating expenses
It includes the expenses necessary to carry out its main activity.
Among them are the following:
Purchases: purchases and supplies of products that are subject to subsequent sale or transformation prior to sale
Variation in inventories: decrease in inventory with respect to the beginning of the year, which implies an adjustment to the number of purchases and production costs of a period, since it implies registering a higher expense since the actual consumption of materials was an amount greater than bought it.
External services: research and development expenses, leases, repairs, transport, insurance costs, advertising, supplies (water, electricity, gas), telephone and bank expenses such as account management and maintenance fees.
Taxes: they can be indirect, such as Real Estate Tax and similar, and VAT adjustments when not all VAT paid is deductible in application of the pro rata rule; They can also be direct, such as corporate income tax accrued in the year.
Personnel expenses: those related to salaries, compensation, business social security contributions, contributions to pension plans by the company and other expenses of a social nature.
Other management expenses: those derived from firm insolvencies of clients and others, such as the regularization of supplies and tools used in the production process.
Losses from non-current assets and exceptional expenses: correspond to losses arising from the sale of these assets or when they are removed from the balance sheet for other reasons, losses arising from the amortization of obligations, and losses arising from claims and penalties and fines. .
Amortizations: express the systematic loss experienced by non-current assets, material or intangible, for their use in the production process, and also for real estate investments.
Losses due to impairment of fixed assets, inventories and trade credits: these represent the estimated valuation correction of all these assets when they are reversible and are made at the end of the year.
Related terms
The term EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is very frequently used in financial reports. It refers to the Operating Income, -since interest and corporate tax are not included-, but from which depreciation and impairment losses of all types of assets have been excluded, thus constituting what can be called Gross result of the Exploitation.
Example
These data are assumed for Income and Operating Expenses for a year:
Obtain the Operating result and the Ebitda
Solution
Manuel Campuzano, Professor of Management Accounting at EAE Business School
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