Financial Statements : Company 's Performance, Controlling Finance, Financial, And Financial Planning

1898 Words Jan 6th, 2016 8 Pages
Chapter-3 reflects on distinct financial statements such as income statement, balance sheet, cash flow statement and statement of shareholder’s equity. These statements help managers in analyzing firm’s performance, controlling finance, financial forecasting, and financial planning. To prepare financial statements accountant must consider the revenue recognition principle, the matching principle, and the historical cost principle.
• The Income Statement - is necessary to calculate the profit generated by the company during a year or a quarter. It is also called profit and loss statement. Company’s gross profit can be identified by subtracting cost of goods sold from sales. To find net operating income (earnings before interest and taxes) all the operating expenses should be subtracted from gross profit. Whereas interests paid on any loans should be subtracted from net operating income. And all the taxes should be minus from earning before tax to calculate net income.
• The income statement also describes cash outflow for the dividend payment to shareholders. These details provide a fair idea about company’s profit margins. It is essential to calculate different profit margin to assume the actual net profit made by the company because as we go down in income statement calculation the profit figures reduce. All the expenses such as payment of expenses, taxes, profit sharing with stockholders, long term and, short term debts are deducted from the net profit to get the…
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