Summary 2.3.2 - Income Statement Influence Chart

My understanding of the Income Statement influence charts in this section is that is begins with the depiction of a static influence chart and ends with a future Income Statement influence chart which could be used as a simple projection model.  The influence chart follows the business rules used by the income statement which generally ends with Retained Earnings. In reviewing the additional symbols on the chart it is understood that this is a static chart and does not indicate future earnings or growth potential because there are no determinants for Cost of Goods Sold or Sales Revenue, also standard accounting variables. The outcome though is the same regardless, so the chart begins with the hexagon symbol of Retained Earnings. The determinants for this outcome are Profit After Taxes + Dividends, with Dividends being a fixed input parameter indicated by an upside down triangle. Both determinants have arrows feeding into the Retained Earnings outcome. The influence chart now contains three symbols but has additional determining factors to consider. For instance Profit After Taxes is calculated based on the fixed input parameter of Sales which is subtracted from the Expenses variable which is also a determinant for Profit After Taxes. When considering the Expenses variable the three determining factors are Cost of Goods Sold, Depreciation, and Interest variables. These are all Fixed Input Parameters indicated by the upside down triangle. This completes our Income Statement influence chart and leads into our Income Statement influence chart for a model with the major difference being this chart takes into account future earnings and includes the determinants leading into the Cost of Goods Sold, a fixed input parameter of Unit Cost multiplied by the other determinant Quantity Sold. Quantity Sold is determined by Initial Sales and Sales Growth, both fixed input parameters

(Powell & Baker, 2009).

 

References:

Powell, S. G., & Baker, K. R. (2009). Management Science, The Art of Modeling with Spreadsheets. Hoboken, NJ: Elbe, Susan.

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