Journal of Accounting and Management Information Systems (JAMIS)

The appearance and development of the vertical income statement and its effect on managerial accounting

Supp/2006 ,   p362..371


Keywords:   vertical income statement, double entry accounting system, managerial accounting

The vertical income statement, which is one of the main income statements of accounting, is accepted all across the world. Nevertheless, this vertical form is not compatible with the principles of the double-entry accounting system. The first usage of the vertical income statement came about in the second half of the 19th century. The emergence of managerial accounting occurred at the same period. In the years of the First World War (1914-1918), banks were not only examining the balance sheets of risky customers before lending credits, they were also bringing to the fore, the relationship between profits and sales. As a result of this, vertical income statements started to be applied. In the beginning, the vertical income statement was based on an arrangement of sales to gross margin from the top to the bottom. This system developed during the 20th century to give us its current form today.

During this development period, the vertical income statement advanced alongside managerial accounting. This was because the vertical income statement system was compatible with financial analysis techniques. It was the 20th century in which both managerial accounting and the vertical income statement finished their globalization of the world. Unfortunately, there has not been any discussion on the side-effects of this process to the principles of the double-entry accounting system.