The Need for Accounting Statements

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

The income statement (IS) also known as the profit & loss statement provides the net gain or net loss of a business entity. The importance of the income statement is to evaluate profitability of a company (Finkler, Jones, and Koyner, 2013). The best use of the IS,

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

Moving on to the last one, which is the cash flow statement. The cash flow statement allows investors to understand how a company’s operations are running, where its money is coming from, and how it is being spent. The cash flow statement is also a mandatory part of a company’s financial report, and has been so since 1987 (Investopedia, 2009).

The cash flow statement reveals that net cash from operating activities, after deducting dividend payments is very low. The major cash flow impacts are capital expenditure of $300,000 over the last three years and borrowings of $150,000. The balance of $150,000 has been funded from operating activities and has been the cause of the reduction in the closing bank balance to $20,000. This in turn has affected the working capital ratio.

The first of the financial statements is the income statement. The income statement states the revenues and expenses in an understandable way that shows a clear picture of net income or net loss for the

The balance sheet reports the resources of the company with three main components broken down into an algebraic equation (assets = liabilities + owner equity). The income statement reports the amount of net income earned by a company during a specific time. The net income is an excess of revenue over expenses. The statement of cash flow reports the amount of cash collected and paid out by a company in the following three ways: operating, investing, and financing (Albrecht, Stice, Stice, and Swain, 2008).

Accounting deals with financial transactions between a firm, its employees, customers, suppliers, and owners as well as bankers and various other government agencies. Financial statements provide managers with essential information they need to evaluate the liquidity of an organization. This is the firm's ability to meet current obligations and needs by converting assets into cash, the firm's profitability, and its overall financial health.

A financial position is often presented to an organization for comparison of a previous year financial position. Financial positions also provide information about resources, obligations to creditors, and equity in net resources. The operating statement is also known as the profit and loss statement. The operating statement is a summary of transactions of an organization and indicates whether the organization made a profit or loss during a particular time frame. The profit of an organization is the excess of revenue over expenditure. Revenue reflects the company’s income generated from its profit activities which are known as the positive cash flows. The decrease expenses in the company’s asset results in negative cash flows. The net income and profit is the difference between the positive and negative cash flow. Cash flow statements are statements that allow organizations to determine if the company is making money from its core operations or financing itself through debt. The cash flow statement of an organization has three components that determine what enters or leaves the organization during a specific time frame. The three components include core operations, investing activities, and financing activities.

Income Statement: Income statement is mainly the report on Income. Its accounting definition is “Income= Revenue – Expenses”. Income statement shows how much it has cost the bank to acquire its deposits and other funds sources and to generate revenues from the uses the bank has made of those funds. It is also known as profit and loss statement or Statement of revenue and expense.

One of the most valuable concepts that Intermediate Accounting I taught me was the function of income statements and balance sheets (U.S. Securities and Exchange Commission, 2007). By better understanding these types of financial reporting, an individual pursuing a career in business will be able to recognize the financial health of a company and will be able to forecast future business growth and investment potential based upon past success. Additionally, a person that understands these financial reports will be able to manage money within a company better because they know how much money is available and how much money they have to work with in order to maintain a stable and profitable company. It is important for a business candidate to understand how financial reporting works because it will help them better understand how an industry or company functions instead of just knowing his or her function within an organization.

In financial accounting, a balance sheet or statement of financial position is a summary of the balances of each person or each company. A balance sheet is often referred like a view of the financial condition of each company. In practice, it summarizes the assets of each company, the liabilities and equity of shareholders at a certain point in time. These three balance sheet segments offer the investors the possibility to have an idea about what their company has and owes, as well the total amount of equity that the shareholders have invested (Das, 2010).

Income statement-: Income statement is the financial statement that measures a company 's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.t (Wikipedia2015, May 13)