Income Statement

Question:

Describe what information an income statement provides for a business? Is financial reporting complete without an income statement?

Explain with a real life example

Answer:

Financial statement: financial statements are the end products of accounting process. They provide information about the profitability and the financial position of a business. These statements include at least two statements:-

1. Income Statement or Profit Loss Account

2. Statement of Financial Position or Balance Sheet

(D.K. Goel, 2010)

Income statement:

This includes a trading a/c as well. It shows the net results of the business operations, i.e., net profit or loss during an accounting period.

(D.K. Goel, 2010)

Features of income statement:

• Income statement is important for the entire business firm may be small or large.

• It is prepared on cash basis not on accrual basis.

• In this only revenue expenses and incomes are recorded.

Importance of income statement:

• It tells us about the financial position of the business firm whether the firm makes profit or suffer losses.

• Income statement show the net profit or net losses of the company if it is not prepared then how the company able to balance its balance sheet.

• It gives clear view of our firm, which makes stakeholders and investors to invest easily and reliably.

So, financial statement is not complete without income statement. Income statement is prepared to calculate the net profit and loss of the company. By which firm is easy able to understand its position in the market where they survive.

For example:

I am taking the example of APPLE Company, in this I am trying to show that if there is no income statement so business is not able to find profit or loss by which balance sheet and cash flow statement is not prepared. Income statement, balance sheet, cash flow are going hand in hand or are interrelated.