How to Create a Comparative Income Statement

Finance
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6 min. Read
Last Updated: 07/16/2015

The comparative income statement is defined and illustrated including two different formats, the horizontal and vertical analysis statements.

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The comparative income statement is a very useful tool for business owners. It provides a way to analyze the results of operations over multiple accounting periods with a few different options for review.

Income Statement Defined

The income statement for a company shows revenues minus expenses equaling net income or loss for a specific period, e.g. for one month, one quarter, or for the fiscal or calendar year. It provides a picture of profitability and the total for the period for each revenue and expense line item.

Income Statement Example

ABC Accounting and Tax Service Income Statement For the Year ended 12/31/2014
Revenue:	2014
Income from Accounting Services	$150,000
Income from Tax Services	$120,000
Total Revenue	$270,000
Expenses:
Rent	$5,000
Utilities	$1,000
Office Supplies	$500
Wages	$175,000
Payroll Taxes	$25,000
Advertising	$3,000
Training	$1,500
Insurance	$1,000
Legal and Professional Fees	$1,200
Total Expenses	$213,200
Net Income	$56,800

Comparative Income Statement defined

The comparative income statement takes the same information, but presents it for multiple accounting periods in one statement—allowing users to compare and analyze the historical results of the company. The statement is set up with a column for each accounting period, such as for the years 2011 to 2014, or for the months of January, February, and March.

Comparative Income Statement Example

ABC Accounting and Tax Service Comparative Income Statement For the Year ended 12/31/2014
Revenue:	2014	2013
Income from Accounting Services	$150,000	$135,000
Income from Tax Services	$120,000	$110,000
Total Revenue	$270,000	$245,000
Expenses:
Rent	$5,000	$4,900
Utilities	$1,000	$1,000
Office Supplies	$500	$425
Wages	$175,000	$160,000
Payroll Taxes	$25,000	$23,000
Advertising	$3,000	$5,000
Training	$1,500	$1,500
Insurance	$1,000	$1,000
Legal and Professional Fees	$1,200	$1,000
Total Expenses	$213,200	$197,825
Net Income	$56,800	$47,175

The previous example is a simple statement. In addition, there are two different formats that can be used in presenting a comparative income statement for analysis, including horizontal analysis and vertical analysis.

Horizontal Analysis compares the same line item in the statement for two different periods and calculates the increase or decrease from one period to the next. The difference is displayed both by amount and by percentage. For example, as illustrated in the following, income from accounting services increased from 2013 to 2014 by $15,000 ($150,000 - $135,000). The $15,000 is an 11.11% increase ($15,000/$135,000). This analysis is considered horizontal because the percentage calculation is based on the one item, income from accounting services and continues down the statement for each line item.

Horizontal Analysis Comparative Income Statement Example

ABC Accounting and Tax Service Horizontal Analysis Comparative Income Statement For the Year ended 12/31/2014
Revenue:	2014	2013
Income from Accounting Services	$150,000	$135,000
Income from Tax Services	$120,000	$110,000
Total Revenue	$270,000	$245,000
Expenses:
Rent	$5,000	$4,900
Utilities	$1,000	$1,000
Office Supplies	$500	$425
Wages	$175,000	$160,000
Payroll Taxes	$25,000	$23,000
Advertising	$3,000	$5,000
Training	$1,500	$1,500
Insurance	$1,000	$1,000
Legal and Professional Fees	$1,200	$1,000
Total Expense	$213,200	$197,825
Net Income	$56,800	$47,175

Vertical Analysis allows you to see the relationship between each item in the statement as a percentage of the whole. For example, in the vertical analysis of the income statement, each expense account is represented as a percentage of total revenue. As illustrated in the following, the proportion of sales derived from accounting services has increased from 55.10% ($135,000/$245,000) to 55.56% ($150,000 / $270,000) of total revenue. This type of analysis can be very useful in reviewing expenses as well. For example, total revenue increased at the same time wages, as a percentage of revenue, decreased from 65.31% to 64.81%. This indicates a higher level of return on wages paid.

Vertical Analysis Comparative Income Statement Example

*ABC Accounting and Tax Service Vertical Analysis Comparative Income Statement For the Year ended 12/31/2014*
Revenue:	2014

*Income from Accounting Services*	*$150,000*
*Income from Tax Services*	*$120,000*
*Total Revenue*	*$270,000*
Expenses:
*Rent*	*$5,000*
*Utilities*	*$1,000*
*Office Supplies*	*$500*
*Wages*	*$175,000*
*Payroll Taxes*	*$25,000*
*Advertising*	*$3,000*
*Training*	*$1,500*
*Insurance*	*$1,000*
*Legal and Professional Fees*	*$1,200*
*Total Expense*	*$213,200*
Net Income	*$56,800*

Summary

The comparative income statement can be created using accounting software or a spreadsheet application such as Excel®. The basis for the report is the standard income statement listing all revenues and expenses and figures for the period under review. Next, calculations are done to show the changes from one period to the next along with percentage calculations based on the choice between horizontal or vertical analysis. The spreadsheet application requires a great deal more work to set up the calculations and does leave more room for error. The use of accounting software standard reports, or report writing modules is a much more efficient and accurate way to prepare a comparative income statement.

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