Business Accounting

Running head: INCOME STATEMENT

The Effectiveness of an Income Statement

Jonathan D. Clark

Strayer University

ACC 557 Financial Accounting

Professor: Sheila Woods

May 22, 2012

The Effectiveness of an Income Statement

The introductory of this research focuses on the concepts of an income statement and how it applies to the fundamental world of accounting. For many years, companies have been using income statements in order to determine the successfulness of their businesses. According to Williams (2010) an income statement presents the revenues and expenses of a company for a specific period of time. Many companies prepare income statements at the end of every month as opposed to the balance sheet where they are done for a specific moment in time. The primary focus of an income statement is to show whether or not a company has been successful in gaining revenue or determine if a net loss has occurred. Research indicates that within an income statement, revenues are listed first, followed by the expenses. When a company’s revenues exceed their expenses, a net income has occurred (Fischer, 2012). This typically means that the company is gaining money and is making a profit. On the other hand, when a company’s expenses exceed their revenues, a net loss has occurred. This simply means that the company has lost money because they have more money going out than they have coming in (Weygandt, 2010).

Throughout this research, several factors concerning an income statement will be discussed. We will determine how an income statement is applied to everyday life. We will also discuss, using the same concept, how a business manager may benefit from the understanding of an income statement. Lastly, I will discuss how an income statement may be beneficial to me in the future as an up and coming principal of either middle grades school or maybe even a high school in the Georgia public school system.

First, let’s take a look at how an income statement is applied to...