The Income Statement

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As it has always been a point of concern that people pay attention to the profitability of a company and this can be as a result of several reasons. For example, let’s picture a company that was not able to operate profitably, the bottom line of the income statement will indicate a Net Loss. Thus, a banker, lender or creditor may be reluctant to extend additional credit to the company. While on the other hand, if a company operates profitably, the bottom line of the income statement will indicate a net profit or income, which demonstrates its ability to use borrowed and invested funds in a successful manner. A company’s ability to operate profitably is important to current lenders and investors, competitors, government agencies, labour…show more content…
Also, the company’s outstanding reputation, the brand names developed and the unique product lines within the company will also not be reported on the balance sheet. The accountants matching principle will result in assets such as building, furniture and fittings, equipment’s, vehicles etc. that is being reported at amounts less than these assets usually depreciate in value. Depreciation reduces an assets book value each year and these amount that is being depreciated is reported as depreciation expenses on the income statement.
Brief definition of what would be found in the balance sheet are;
a. Long-term liabilities: long-term liabilities such as Note Payable (not due within one year) or Bonds Payable (not maturing within one year) will often have current values that differ from the amounts reported on the Balance Sheet.
b. Current Assets: current assets such as cash, accounts receivable, inventory, supplies, prepaid insurance etc. are usually close to the amount reported on the Balance Sheet.
c. Current Liabilities: Current liabilities such as Notes Payable (due within one year), Accounts payable, Wages Payable, Interest Payable, Unearned Revenue etc. are likely to have current values that are close to the amounts that is been reported on the Balance Sheet.
Note: By definition, the current Assets and Current Liabilities are “turning over: at least once a year and as a
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