The purpose of an income statement
1. What is the purpose of an income statement, and who is the audience for this document? What components do income statements typically contain? Why? (200 words)
Student response (100 words)
2. The main purpose of an income statement is to so a broke down version that is easy for people to read of the income of the company. The income statement can be used to show the income flow for the company in order to compare to other time periods which can help investors or management to see if there is an increase or decrease in revenue in a timely manner. The income statement show all revenue that has been added together to make one amount and all expenses which has also been added together to make one amount that the company has with an ending net income that shows if the company has a net income or a net loss. The income statement is used to ultimately show wither the company is succeeding or failing for a time period which is used to predict future performance of the company. The income statement is used to inform everyone that has any part in the company of the standing of the company for the time period this can be the investors, lenders, creditors, and even the owners of the company.
3. The income statement is the report that measures the success of company operations for a given period of time. It is also called profit and loss statement for some small business. It is used to determine profitability, investment value, and creditworthiness. In general, the audience for this document is investors and creditors, who predict the amounts, timing, and uncertainty of future cash flows. (Kieso, 2016)
Major elements of the income statement are revenues, expenses, gains, and losses.
Revenues are company’s sales, service fees, interest, dividends, and so forth, which are the company’s main income sources from its regular operations. Expenses are outflows which is generated from the company’s regular operation, such as cost of goods sold, selling expenses, administrative expenses, and so on. If the business has inflows or outflows from outside of its regular operations, then they are called gain or loss, respectively. These gains
and losses have unique characteristics: Unusual and infrequent. They need to be separately reported on the income statement because they are not a part of regular operation. If they were commingled with revenues and expenses, the income statement will mislead investors or creditors, who make decisions based on the financial statements.
References:
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate accounting. Hoboken, NJ: Wiley.
2. The main purpose of an income statement is to so a broke down version that is easy for people to read of the income of the company. The income statement can be used to show the income flow for the company in order to compare to other time periods which can help investors or management to see if there is an increase or decrease in revenue in a timely manner. The income statement show all revenue that has been added together to make one amount and all expenses which has also been added together to make one amount that the company has with an ending net income that shows if the company has a net income or a net loss. The income statement is used to ultimately show wither the company is succeeding or failing for a time period which is used to predict future performance of the company. The income statement is used to inform everyone that has any part in the company of the standing of the company for the time period this can be the investors, lenders, creditors, and even the owners of the company.
3. The income statement is the report that measures the success of company operations for a given period of time. It is also called profit and loss statement for some small business. It is used to determine profitability, investment value, and creditworthiness. In general, the audience for this document is investors and creditors, who predict the amounts, timing, and uncertainty of future cash flows. (Kieso, 2016)
Major elements of the income statement are revenues, expenses, gains, and losses.
Revenues are company’s sales, service fees, interest, dividends, and so forth, which are the company’s main income sources from its regular operations. Expenses are outflows which is generated from the company’s regular operation, such as cost of goods sold, selling expenses, administrative expenses, and so on. If the business has inflows or outflows from outside of its regular operations, then they are called gain or loss, respectively. These gains
and losses have unique characteristics: Unusual and infrequent. They need to be separately reported on the income statement because they are not a part of regular operation. If they were commingled with revenues and expenses, the income statement will mislead investors or creditors, who make decisions based on the financial statements.
References:
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate accounting. Hoboken, NJ: Wiley.
Answer preview to the purpose of an income statement
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