A Description Of Business Financial Statements

An income statement, also known as a profit and loss statement shows how much money a company has spent over a period of time. It also shows the costs and expenses that are associated with earning that revenue. It is an important measure of the company’s profitability. The simple building blocks of a net income formula are revenues minus expenses equal net income.

When you’re looking at the income statement, you can get information about profitability for a particular period. This is also called the profit and loss statement. The income statement is composed of both income and expenses. This statement can be used to deduct expenses from income and report either a net profit or net loss for that period. This statement will deduct all expenses from income and then report your net profit or net loss for that period. This will allow the business owner to determine if the business is bringing in a good amount of revenue to make a profit. The cash flow statement shows the movement in cash and balance over period. The cash flow can vary depending on the operating activities, investing and financing activities. This statement provides one business owner with insight to the company’s liquidity which is vital to the growth of the business. Reinvesting in business is very important, looking at the statement of retained earnings will tell a business owner how much were reinvested in the company. After profitable period, every big business has to give some of its profits to stockholders, and keep the rest amount as retained earnings. Out of all statements, retaining statement is important to companies that sells stocks to the public. This statement can also provide you with assets and liabilities information. These informations can be used to assess the financial health of your business. The results of a balance sheet will help the business owners to show the risk of liquidity and credit. Looking at these information you can measure trends and relationships to show where in the areas you can improve. These can also be compared to similar companies to show how the business measures up to leading competitors (Ali, 2010). In summary, the financial statements can provide a business owner

* 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)

Financial statements provide financial decision makers with varied information presented in specific formats that is easily attainable tools to evaluate financial health. Three of the necessary financial statements are the statement of financial position or the balance sheet, operating statement also called income statement, and the statement of cash flows (Finkler, Jones, and Kovner, 2013).

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).

Separately, the balance sheet reports a company’s financial position while the income statement reports a company’s fiscal year profits and losses. The balance sheet measures a company’s financial position by reporting its assets, liabilities, and owner’s (shareholder’s) equity. The income statement measures a company’s financial performance by reporting its revenues, expenses, and net income/loss. When combined, they serve two vital purposes: (1) expand the accounting equation and (2) enable analysis using ratios to determine industry position or potential material misstatements. The increase or decrease in owner’s (shareholder’s) equity on the balance sheet is a direct result of the net

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 tells how much money a company has brought in (its revenues) how much it has spent (its expenses) and the difference between the two (its profit). The income statement show’s a company’s revenues and expenses over a specific time frame. This statement

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:

According to Hermanson, R., Maher, M., & Edwards, J. by definition an income statement “is a financial statement that shows cases a companies’ profitability during a set period”. How that profitability is measure is by comparing the revenues earned with the expenses incurred to produce these revenues. If the production of these revenues exceed the expenses that they incurred than the company has gained a net income and if the expenses incur were to exceed the revenue than the company has suffered a net loss.

Each user of the financial statements interprets the information in a different manor. They use the information to determine their interactions with the organization. Management, investors, and employees use the same information from the financial statements but for different purposes. These four basic statements are the fundamentals of accounting which can be much more detail and complex. They do not need to be more complex for the users of the information; these basic statements have all the information needed to make

It is important for every business to carry out financial statement analysis in order to gain an understanding of their current financial status. There are two main types of financial statements that businesses commonly use when it comes to financial analysis. These are known as the Profit and Loss Account and the Statement of Financial Position. A profit and loss account consists of a list of expenses incurred by the company, against their revenues over a certain period of time. It shows whether the organisation

The elements of financial statements are statement of financial performance or income statement, statement of financial position or balance sheet, statement of cash flows, statement of stockholders equity and notes. Statement of financial performance gives information about the financial health or profitability of companies during a particular period of time. For example, the company is profitable if its sales revenue exceeds its business expenses, and users of financial statements such as investors, creditors, banks and government agencies may use the information in the income statement to make economic decision. Moreover, the company is operating unprofitably if its expenses exceed its sales revenue during a particularly

The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ