The Income Statement
I receive a lot of questions regarding the purpose of each of the financial statements: income statement, balance sheet and cash flow. The next three post will address this beginning with the income statement.
The main purpose of the income statement is to report the company’s profitability. This is calculated by taking the total sales revenue and then subtracting the total expenses resulting in the net profit (or loss in the case of a negative number).
The income statement follows a specific reporting time frame, such as one year concluding at the end of a calendar year (December 31st) or fiscal year (last day of a month as chosen by the company). Therefore, it can be said that the income statement reports the company’s profit or loss within a one-year time frame.
It is important to note the limitations of the income statement. In other words, the information that cannot be obtained by reviewing the income statement and must be derived from either the balance sheet or cash flow statement.
1. The income statement does not tell you when the company receives cash or how much cash the company has available for operations. The cash flow reports on the movement of cash.
2. The income statement does not provide complete information about the company’s health—the balance sheet reports on assets, liabilities and equity.
To learn more or purchase an ebook: HOW TO READ FINANCIAL STATEMENTS REFERENCE MANUAL:
INCOME STATEMENT, BALANCE SHEET AND CASH FLOW visit www.BusinessSimplyPut.com
Categories: Finance
Tags: financial statements income statement Business Simply Put Lori Williams small businesses finance bal
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