2.1 Income statement and balance sheet

Income statement is a financial report which shows how the company’s revenues and expenses transform into the net income. Income statement provides information to users about how much revenue a business earned in a particular time period. Income statements also shows information about costs, expenses related to business earning, it is an important to investors, because income statement reports net earnings of a business so it tells how much dividends investors receive for the period. The basic objective of income statement is to indicate where company made income or lost during the certain time period in order to serve owners. Income statement is considered to be “the statement of activities” of an organisation. An important fact to memorize about income statement-it represents a period of time while balance sheet shows a moment in time.

Balance sheet provides information about business’s financial balance and it is reported in a specific date, at the end of financial year. Balance sheet is usually called as “snapshot of a business’s financial situation”. Another concept underlying balance sheet, it describes only a single point in financial year. The standard balance sheet of a company consists of three parts: assets, liabilities and ownership equity. The main part is assets, which is followed by the liabilities- the relationship between assets and liabilities is known as equity. Usually balance sheet is described in the form of one section which is assets and other section which is net worth and liabilities with the two sections balancing.

References

1. Accounting standards-importance and benefits to business. Retrieved from:http://onlineaccountingblog.shoebooks.com.au/2011/08/22/accounting-standards-importance-and-benefits-to-businesses/

2. Advantages of using accounting in business. Retrieved from:http://www.ehow.com/info_7746154_advantages-using-accounting-business.html

3. Forms of business organization. Retrieved from: http://www.theamericancollege.edu/assets/pdfs/fa251-class1.pdf

4. Forms of business organization. Retrieved from: http://www.enterprisesaskatchewan.ca/busorg

5. Financial accounting. Retrieved from: http://catalogue.pearsoned.co.uk/assets/hip/gb/hip_gb_pearsonhighered/samplechapter/WeetC05.pdf

Table of contents

1. Introduction................................................................................1

2. Accounting..................................................................................1

3. Benefits of accounting................................................................2

4. Forms of business organization................................................3

5. Users of accounting information..............................................7

6. Income statement and balance sheet........................................9

7. References.................................................................................10

11