Accounting is the information about a business that is communicated and is sometimes called the language of business. Businesses prepare various reports from accounting information. Four financial reports are prepared: income statement, retained earnings statement, balance sheet, and statement of cash flows. Each statement provides different information.
Financial statements are designed to assist investors and creditors in deciding where to place their investment, to keep track of the performance records of a business, and to evaluate profit and liquidity. The reports are prepared from information obtained from the various business transactions that the business recorded. Thus, transactions involving assets, liabilities, permanent and temporary capital becomes the data used in the preparation of the financial statements.
Many people who include investors, management, government agencies, creditors and labor unions have a basic need for accounting information to make well-informed decisions. The major role of accounting information is to provide information in order to make decisions and sometimes referred as a means to an end.
Stakeholders and investors need accounting information on a regular basis to help them monitors the company's success.
The income statement is a report that presents the revenue, expenses, and ending net for a business for a period. The income statement shows the track record of the company and the profitability of the company. The income statement is divided into two parts. The first part is known as the heading and the second part is known as the body of the report. According to Weygandt, Kieso, and Kimmel (2005), the heading of the statement identifies the company, the type of statement, and the time period covered by the statement (p. 22). The body lists the revenue and expenses. Where total revenue exceeds total expenses, the excess represents the net income. Where the total of the expenses exceeds the...