Question

In your own words, compare the information provided by the balance sheet and the income statement. When considering scenarios like a supplier planning to extend credit with terms of payment in 60 days, indicate which type of financial statement you would use and provide a detailed rationale as to why you selected that type of financial statement. Participate in further discussion by identifying a peer that selected a different financial statement and provide a detailed explanation as to whether you agree or disagree with the peer's rationale.

Answer 1

Balance sheet represents the assets & liabilities of a company on a particular date. It provides information on the capital structure, liquidity position, outstanding dues & receivables of the company.

Income statement on the other hand provides information on the income of a company .for a particular period. It provides information on revenues, expenses, & taxes incurred in a specific period.

In the particular scenario, where the credit period is extended for 60 days, we would be looking at the balance sheet of the company. The income statement does not take into account the credit period, while booking for the expenses of a particular company. The expense is booked in the income statement as soon the the sales for the particular expense is booked (mathing principle). It does not take into consideration whether the money is actually deducted or not. Balance sheet records this as trade payables in the current liabilities. The number of payable days would increase and hence the current liabilities, when credit terms by a supplier is extended.