Purpose Of An Income Statement

In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial

* An income statement is a report that contains information in regards to an organizations’ assets and financing in order to obtain those assets that is collected over a certain period of time

(Ohara, 2007) Most financial statements are made public for the benefit of stakeholders and potential investors. The bottom-line is that financial statements are the main source for analyzing how well a company is operating. The income (or profit and loss) statement is simply a report card of how much activity (revenue) was performed in the period, how profitable that activity was (gross profit/loss), and what it cost the contractor to run the business (overhead). (Murphy, 2006)

Users are likely interested in information that will assess the company's liquidity, solvency, risk and return, etc. Therefore, they can know more about how is the company financed and the availability of cash to pay debt from the balance sheet. They can know exactly about allocation of the use of cash for different activities from the statement of cash flows. Income statement will provide the information about the revenues and expenses of the company. They can also access information associated with dividend paid and retained earnings.

Income statements generally report on a period matching the standard accounting periods of the business, or may cover a specific period as defined for research purposes. At the core, the income statement provides a key measure of the profitability of a business. This differs from the liquidity or cash on hand of a business, but instead examines the business’ ability to bring in revenues that exceed expenses over a given period of time (Hofstrand, 2009).

While inaccurate accounting can cause misleading information about the company, every successful company should develop an income statement and balance sheet when monitoring financial growth. Also, formulating a horizontal and ratio analysis creates an accurate trend of the company spending behavior and debt-to-ratio venerability. A balance sheet can be considered as the bloodline of the company, allowing a quick view of financial fluency which could be attractive to outside investors. Last but not least, the income statement presents a hard result of gains, liabilities, revenues and debt within a yearly

Ans: The income statement lists the revenues minus expenses or costs of goods sold and operating expenses and will reveal a net income or net loss (Revenues – Expenses = Net Profit or Net Loss). Income statements show how much money a company made and spent over a period of time. Income Statements cover a specified period of time usually annually or quarterly. An Income Statement represents only one limited view of the companies’ net profits or net loss after all revenues are listed while expenses (costs) and taxes are subtracted. The Income

This Income Statement also known as the Earnings Statements or statement of operation, is one of the four Financial Statement used by accountants, business owner’s, and investors. The Income Statement provides a detailed look into how profitable a business has been over a designated period of time.

A Pro Forma income statement shows a close to accurate picture of a company’s financial position. These statements are used to come up with scenarios, which can test a company’s strength. This shows the investor if they should or should not invest in a company. In addition, these statements are used in the creation of business plans and financial proposals.

Describe the nature of income statements. An income statement is a detailed explanation of a firm’s revenues and expenses. It is also sometimes called a profit and loss statement. Information from the income statement and the balance sheet are used to calculate financial ratios that are useful when making investment decisions. The statement is prepared for a set time period – a financial quarter or a fiscal period. When the income statement is prepared financial information is listed in the following order:

Financial statements are a very useful tool for individuals interested in the organization. Investors use the information to determine if it a wise decision to put their money into the organization. Investors need to determine if the organization has been successful and profitable and will continue to be successful and profitable. Creditors use the financial statements to determine the amount of credit that should be advanced to the organization. Employees generally do not look at the financial statements, but if a new executive was thinking of joining the organization, he or she may want to see the potential of the organization to make sure the investors are becoming a part of a successful organization. Management uses the financial statements on a monthly basis to determine which areas of the organization are profitable and which areas of the organization that needs to be discontinued or restructure to become more profitable.

This essay will begin to look at the main financial statements used by decision makers in businesses today. This essay will go into detail about the income statement and statement of financial position and whether these two statements provide decision makers with their financial information adequately. This essay will also include the various advantages and disadvantages of each financial statement as well as describing whom the decision makers are and why financial statements are important to them. A conclusion will be present at the end of this essay to demonstrate an overall view of whether financial statements are beneficial to decision makers.

Income Statement by a company is the information on the financial statement of a business activity over a certain period of time usually a quarter or a year. It also explained how much revenue the business grew throughout a period of time and the cost it gained in relating to its revenue. Companies have to be able to bring money otherwise they would not be able to stay in business; therefore income statement show how well or how bad the company is doing.

The health of any organization or firm is dependent upon the numbers associated with it. These include the firm 's income statement, balance sheet, statement of cash flows, and ratio analysis. For any investor, lender, or owner to have a full picture of the performance of any entity, it is imperative that they have an in depth knowledge of the construction of values associated with individual line items described and detailed in these documents. In addition, the overall health of the organization can be determined by the reflection of said numbers. In short, these documents make up the nutrition label of the specific company (U.S. Security and Exchange Commission, 2007).

Chapter 17 covers the financial statement analysis and ratios. Financial statement analysis is the process of examining financial statements that will depict the financial position of the company allowing them to make better financial decisions. A typical financial statement consist of a balance sheet, income statement, cash flow statement and notes to account. The most common being the balance sheet and the income statement. The balance sheet, also referred to as a statement of financial positon, is usually made up of assets and liabilities and provides information about the financial position of the company. It is a two sided report, assets on one side, and liabilities on the other. Liabilities typically include accounts payable, accrues expenses, income tax owed, stockholders’ equity (net worth), and loans. The income statement, also referred to the earning and loss statement, depicts the profitability of the company. It shows to total sales revenue for one year. The expenses the company incurs in producing finished good to sell is subtracted from the sales revenue. Also deducted is the operating cost expenses and the deprecation. When analyzing the income statement, it is important to note that the profitability isn’t just the total profit. It is important to look at the ratio of expenses as a percentage of profit. A company with high profits and high expenses could easily be mismanaged.