Explain the purpose of the income statement and thestatement of cash flows.
Explain the purpose of the income statement and the
statement of
Financial statements:
Financial statements are condensed summary of transactions communicated in the form of reports for the purpose of decision making.
Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Statement of cash flows: Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.
Purposes of the income statement
- Calculate the profitability and helps to assess the return on investment of the company.
- Evaluate the operating ability and financial performance of the company for the current period.
- Helps to assess the performance of the management.
- Helps to predict the future cash flows and the net income of the company.
- Helps to compare the financial performance of one company with other companies.
- Helps to evaluate the influence of the economic factors on the company.
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