The income statement provides the full information regarding the company’s performance during a certain period. It usually includes revenues and costs in form of inflows and outflows, write-downs, restructurings, non-cash or non-operating items, income tax expenses, and earnings per share as well as the net income. The operating activities section includes only cash receipts and cash payments for a certain period to demonstrate the sources and amounts of cash and spending. As a result, the income statement and the operating section are similar in terms of presented cash inflows and outflows because the information for the cash flow statement is often taken from the income statement and in terms of specifying the period for the analysis. However, the statements are different because the operating section is focused only on demonstrating general changes in flows when income statements demonstrate how business is successful, and they include non-operating items.
The experience demonstrates that it is necessary to concentrate on the forms of business ownership before starting a business to choose the appropriate level of liability typical for sole proprietorship and partnership; to types of accounting systems; and to the information that needs to be included in financial reports. To achieve success in operating the business, it is important to choose sole proprietorship only when there are no financial and legal barriers. It is necessary to use the accrual-basis accounting method in contrast to the cash-basis method because it prevents effective revenue recognition based on differences in reporting inflows and outflows in accounting sheets. Furthermore, while focusing on franchising, it is important to use the same accounting system to be open to comparing the revenues.