Application of Financial Statement

Application of Financial Statement

August #1. Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.

One of the major financial statements used in accounting is the income statement. The income statement is beneficial to accountants and business owners. Many will also refer to this statement as the “profit and loss statement,” “statement of operations,” or “statement of income.” Regardless of its name, it serves the same purpose and that is to show profitability of a company during a specific period of time. The period of time covered is usually chosen by the business or organization and can vary. Within the statement, revenues, expenses, gains and losses are distinctively displayed. Income statements are imperative to everyday life whether it applies to personal activities or business transactions.

The income statement can be applied to my everyday life in many ways. It allows me to see the revenue stream coming in and allows me to budget more affectively. Understanding my personal income statement also builds a safety net of security or savings. Expenses involved in daily activities allow me to analyze whether money is being saved or lost. I do a lot of spending so budgeting had become a part of my daily life. Knowing how to account for revenue gained, spent or lost helps me to keep track of where my money is going and how it is being used.

#2. Using the same concept selected above, discuss how a business manager may benefit from an understanding of this statement.

Businesses use standard formats or financial statements to record their performance. The income statement communicates the inflow of revenue and the outflow of expenses for a business over a given period of time. It displays whether the business is earning a profit or losing money. I believe that business managers should be able to interpret...