Acc 557

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ACC 557: Financial Accounting

ASSIGNMENT 1: Application of Financial Statement



Presented to

Prof. Mohamed Gurey




Washington DC Campus

August 23, 2012

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

When hearing word of income statement, what I understand from the in class lecture is that the income statement illustrates just how much a company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result, which is either a profit or a loss. Income statement is the one of the three major financial statements. The other two are the balance sheet and the statement of cash flows. According to Gill and Chatton (1999), “Financial statements are the principal means of reporting financial information to people within an organization – management and other employees – and to people outside an organization – banks, investors, suppliers and others.” (p. 2). When using an income statement in everyday life, a person can documented and tracked their monthly or annual income and expenditures. Income statements can also be used on a personal basis to list one’s car payments, rent/mortgage, groceries, auto fuel and etc. It can also be used by banks and creditors to assess whether or not a person can handle more credit. For example, when someone wants to buy a house or a new car the creditors will use the information on his/her income statement to make sure that they can handle the new payments.

Using income statements is a great way to monitor both monthly and annual expenses. Just as income statements contain the list of expenses for a business (e.g. salaries expense, rent expense, and utilities). Using Income statement, a person can monitoring his/her monthly expenses, as well as income, it permits oversight of one’s financial health. He/she can be able to...