SHLOK BAFNA AS LEVEL

Businesses are run by people to make a living. Gain high profits and live a luxurious life. Their way of living depends on the profit of the business which will help them buy food, clothing. Companies profits are prepared through numerous calculations and preparing documents…. What is the document?

What is it? The income statement is one of the major financial statements used by accountants and business owners. It shows if the company is in a profit or a loss, or breakeven. The income statement is important because it shows the profitability of a company during the time interval specified in its heading.

When is it prepared? The period of time that the statement covers is chosen by the business and will vary. For large companies with many transactions each month it will prepared quarterly however small sole proprietors will usually prepare it yearly.

What it shows? In an income statement they compare the revenue with its expenses of the company. If its Revenue exceed costs then company has a profit. If its Costs exceed the revenue then it incurs a loss. Keep in mind that the income statement shows revenues, expenses, gains, and losses; it does not show cash receipts nor does it show money you pay out.

It helps its stakeholders analyze the situation of the company they hold a stake in. Shareholders can decide which company to invest in. Company owners know what is the problem if company is facing a loss.

Steps to prepare Step 1: All ledger accounts must be balanced and a trial balance prepared at the date to which the Income statement is prepared. Step 2: The balances on Sales, Sales returns, Purchases and purchases Returns accounts are transferred to the income statement by journal entry. Gross profit is found out by (revenue-cost)

Question 1) What do income statements show?

2 q2 When are they prepared?

q3 Steps to prepare Income statement?