Income statement - total cost method

The income statement represents the company's earnings situation during the fiscal year and can be presented either as a production income statement (total cost method) or as a sales income statement (cost of sales method).

Total Cost Method

The total cost method represents a production income statement, where revenues and expenses are used with respect to the units produced. Consequently, increases in the inventory of finished and unfinished products are also recorded as revenue, or reductions in inventory are deducted from sales revenues.

Minimum Structuring According to the Code of Obligations

According to Art. 959b para. 2 CO, the production income statement must show at least the following positions individually and in the specified order:

1. Net revenues from deliveries and services;
2. Inventory changes of unfinished and finished products as well as non-invoiced services;
3. Material expenses;
4. Personnel expenses;
5. Other operating expenses;
6. Depreciation and value adjustments on fixed asset positions;
7. Financial expenses and financial income;
8. Non-operating expenses and non-operating income;
9. Extraordinary, one-time or non-periodic expenses and income;
10. Direct taxes;
11. Annual profit or annual loss.

Additional positions must be shown individually in the income statement or in the appendix if this is essential for the assessment of the earnings situation by third parties or customary due to the company's activity (Art. 959b para. 5 CO).

The Agony of Choice

The total cost method is considered less complex than the cost of sales method, where expenses are allocated according to their functional affiliation. For the addressees of the income statement, the functional breakdown often provides more meaningful information. Nonetheless, the total cost method is permitted both under the provisions of the Code of Obligations and according to the accounting standards Swiss GAAP FER and IFRS. Only according to US-GAAP is the income statement mandatorily to be structured according to the cost of sales method.