Concept of Financial Statements in Business Research Paper

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An income statement is a financial statement that summarizes all incomes against expenses of a certain period. The aim of this statement is determining whether there is a profit or loss. It is used in managing a family budget through a clear tracking of incomes and expenses.

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Income statement gives a list of all incomes, employment income, business income and other form such as child support, social security among others. On the other hand, expenses of the family are listed. Expenses such as rent, utility bills, childcare, food, and other family expenses are included here. Where the income statement has more expenses, it represents a net loss.

Where the income is more than the expenses, this represents a net gain (Costales, 1979). Information contained in income statement is useful for a family as it determines the financial situation of the family for a certain period. It is a budgetary tool for the family as it presents a projection for the next period giving room for adjustments.

Family earnings changes from time to time as in the case of employment income through overtime and income statement can be used to avoid misappropriation and false life adjustment. It will help the family to know what they expect and plan for it appropriately and project future cash flows.

An income statement helps a business manager to make decisions that are financially feasible. This is because the manager can make dependent timely decisions on income where a clear financial guide is provided. As a business budgetary tool, an income statement helps to compare performance in the present, past and future. Comparability is a key accounting concept and helps in financial information analysis.

Human resource management in a company cannot be effective without considering its financial impact to the company. Too many staff might over stretch the company resources with few staff reducing its profitability. When a manager wants to add new employees, the income statement is a clear policy guide.

More so where the company engages seasonal employees, the manager may use the past income statement to see when peak seasons occur (Weygandt, 2008). An income statement will also assist the manager to manage office expenses more so the imprest. Using previous statements, an increase in office expenses can be traced and investigated.

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Business managers can monitor monthly and annual expenses with the aid of an income statement. As a manager, one is entrusted with the income and expenditure of their units and departments. Thus, they monitor the expenses for the departments and organization s financial health.

It is through this monitoring that a manager can see where he one is overspending or unnecessary expenditures. A properly managed income statement allows one to budget for unexpected emergencies. For tax purposes, a business manager will ensure proper management and timely payments.

In the present and future position an income statement will help investor in determining the past enterprise performance hence projecting the future performance besides assessing the capacity of generating future cash flows.

It will assist in planning personal incomes and expenses. An income statement will be very relevant in future business cycles due to the current emerging issues in accounting. Accounting for emergencies will definitely need the preparation of income statement (Beaver, January 1968).

A balance sheet presents a summary of all financial balances of a business. The balances include assets and liabilities as at the end of a certain financial period. It presents the financial position of an entity during a certain period. This will enable investors, creditors and potential l investors in their choice of invest

References

Beaver, W. H. (January 1968). Alternative Accounting Measures as Predictors of Failure. Accounting Review , 113-22.

Costales, S. B. (1979). The Guide to Understanding Financial Statements. London: McGraw-Hill Book Company.

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Weygandt, J. J. (2008). Financial accounting: 2010 custom edition (6th ed.). Hoboken, NJ: : John Wiley & Sons.

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IvyPanda. (2019) 'Concept of Financial Statements in Business'. 20 August.

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IvyPanda. 2019. "Concept of Financial Statements in Business." August 20, 2019. https://ivypanda.com/essays/financial-statements/.

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