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How income statements are prepared using marginal and absorption costing.

The principles of marginal costing and absorption costing can be used in the preparation of income statements. In particular, the principles of absorption costing have to be employed in the preparation of financial statements for external uses. One of its fundamental principles encompasses the inclusion of a portion of all costs of production in inventory and units produced. On the other hand, the purpose of utilizing principles of marginal costing encompasses using them for making decisions internally (Walker, 2005). The purpose of this paper is to assess the preparation of income statements under the principles of marginal costing and absorption costing, outlining the different formats income statements and how they are reconciliated. The paper will also assess the shortcomings of each approach.

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