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Business Is Profiting Or Losing Money?

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How will the investors, creditors, or anyone interested in a business know if a business is profiting or losing money? In accounting, financial statements are the bridge between numbers and the understanding of a business ' well-being. Financial statements have to be prepared one at a time in a specific order which is the income statement, statement of retained earnings, then the balance sheet. Knowing the purpose of each financial statement and how to create them is crucial in understanding the health of a business. The first financial statement in accounting is the income statement (also known as the statement of earnings). This statement only focuses on two accounts; revenue, and expenses. Revenue is money that the business brings in during a period of time, and expenses are the cost of keeping a business operating. Expenses include cost such as rent, advertising, utilities, and salaries for employees. A business needs to make revenue in order to cover expenses. All businesses hope to make a profit by having money left over after all the expenses are paid. A profit is called net income. However, a net loss is expenses that exceed revenues. The income statement calculates if a company had a net income or net loss for a period of time, such as a month, quarter, or year. To create the income statement someone must find the net income or loss starting with listing and totaling all revenue accounts. The same must be done to all the expense accounts. Following that, the

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