A contribution income statement (CIS) is an internal financial document that organizes data based on behavior rather than function. It is useful for cost analysis and evaluating department performance, and can be prepared quickly using accounting software. It is typically used alongside a more conventional income statement for external purposes.
A contribution income statement (CIS) is an alternative to the more commonly used income statement absorption style, and uses a different basis for organizing the data found in the document. With a contribution income statement, data is organized with behavior in mind, rather the more traditional approach of structuring the income statement on a function basis. This arrangement can sometimes show the connection between the fixed and variable costs associated with a particular cost element for better effect, a benefit that can be very useful in terms of cost analysis.
The use of a contribution income statement is intended for internal use only, and is not normally shared outside the confines of the company structure. Typically, the statement is prepared in conjunction with a more conventional takeover-style income statement, allowing the company to present the data in a format that is in line with the preparation of the financial statements to be investors, as well as to justify items in a tax return. While the latter works well for all external purposes, the CIS is very useful for managers, owners, and others who are concerned with how money is spent within the company and what kind of return is generated as a result of those expenses.
There are three main benefits to preparing a contribution income statement. The arrangement of the data lends itself well to various types of analyses, since it is easier to determine the relationship between cost, volume of production, and the profit generated by that production. Since data is organized based on behavior, this form of income statement is also useful for evaluating overall department performance and the quality of leadership provided by a department manager. The statement is also useful when there is a need to make a quick decision that is somewhat outside the scope of daily operations, especially if the outcome of that decision could have a short-term positive or negative effect on the company’s finances. .
While it is possible to manually prepare a contribution income statement in conjunction with the absorption income statement type, many brands of accounting software include the ability to prepare both formats without much difficulty. As long as the data entered into the database is correct, both reports can be prepared in a matter of minutes. This means that the declaration can be generated as many times as necessary to provide up-to-date information for use in several different projects.
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