Depending on how companies account for changes in inventories, we distinguish "absorption costing" and "variable costing". In addition, some companies structure their income statement according to the "nature of expense method", while others structure it according to the "cost-of-sales method". We explain both methods and discuss their advantages and disadvantages.

Many companies use contribution margin accounting to measure success instead of the income-statement formats. Contribution margin accounting is a special income-statement format that displays variable and fixed costs separately. In this module, we discuss the advantages of contribution margin accounting over traditional income statements. Further, we outline the differences of simple contribution margin accounting and multi-leveled contribution margin accounting.