Importance of income statement

Matt Mowrey shares with us a really useful technique to create a discoverable income statement using PowerPivot. This post runs a little longer than usual to describe the technique, but totally worth it. I spent a lot of time learning about PowerPivot and DAX,with the goal of programming our host of reports, including a discoverable income statement pivot table.

Importance of income statement

Importance of income statement

The revenue and expense figures used for the preparation of income statement are directly taken from the adjusted trial balance. If revenue exceeds the total expenses, the income statement shows a net income for the period but if, on the other hand, the total expenses exceed the revenue, it would show a net loss.

It is, therefore, prepared first of all other financial statements. Income statement is known by various names such as statement of operations, earnings statement, and profit and loss statement.

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The adjusted trial balance of the company at December 31, is given below: Various parties such as management, shareholders, investors, creditors, and government agencies are interested to know the success of business operations of the company in terms of profitability.

The companies periodically provide this information through preparing and publishing an audited income statement. Moreover, all publicly owned companies are legally required to prepare and publish an income statement as a part of their annual reports.

Limitations of income statement: Income statement is of vital importance for the users of the financial statements. However, it suffers from the following limitations: The accounting process is based on various assumptions and estimates.

The Importance of the Income Statement, Business, Basic Accounting Financial Information

Therefore, the net income or loss measured by preparing an income statement is not absolutely accurate. An example of estimates used in the accounting process is the depreciation which is computed on the basis of estimated useful life of assets such as building, plants and equipment etc.

The use of judgments and estimates in the accounting process enables management to use such figures that would generate desired net income or net loss figure for the period.

A manipulation in net income is possible by using a particular inventory valuation method such as FIFO methodLIFO method and average costing method. For example, a sound customers relation policy can develop a good customer base that can certainly be beneficial for a profitable business operation but its value cannot be objectively measured unless evidenced by an actual business transaction.A gathering of more than 40 community members resolute on co-designing a network dedicated to resource sharing and collaboration around digital equity took place on October 25, Most people don’t like to think about death.

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A company's statement of profit and loss, also known as its income statement, has its drawbacks. For the most part, the statement accurately reflects a company's past profitability, and earnings.

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