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Investments

Financial Accounting - ACC 557

Dr. Alfred C. Greenfield, Jr.

May 29, 2011

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

The income statement is known by many companies as one of the most important financial statements used. While the income statement provides a record of revenues and expenses for a given period of time, the statement can also be used in everyday life. The income statement is referred to as a profit-and-lost statement. It is simple to use the income statement and easy to individuals to apply the concept to everyday life. The income statement show revenues earned, for individuals that would be their salaries and investment. The income statement then show expenses. Individual expenses and fees range from mortgage, utilities, and gas, etc.

In today's economy, it is important for individuals to take control of their finances and understand where their money is being spent. The income statement provides a snapshot of all the revenues earned by an individual in a specific time period which allows the individuals to see their true cash flow. The next step is to list expenses. This is great because individuals need to see how they are managing their money and where they are spending the most of it. This can also help individuals decide if adjustments or financial decisions can be made to improve or enhance their current situation.

After all revenues and expenses are reported and shown, the income statement discloses net income and debit ratio. It is important for individuals to have financial security and using the income statement to gain a clear insight to how revenues are being earned and what expenses are being paid allow people to make better choices. If revenues are exhausted after all expenses have been paid then individuals have a high debt ratio and need to make changes to allow for their revenues to cover their expenses.

Using the...