Question

SMALL BIZ DB WEEK 6

Explain what is the Income Statement? What information is it providing you and why is it important to the business owner? Explain what is the Balance Sheet? What information is it providing you and why is it important for the business owner?

PLEASE ANSWER THE FOLLOWING QUESTIONS IF ALL ANSWERED CORRECTLY WILL RATE 5 STARS NO SCREEN SHOTS OR IMAGES OF RESPONSE. PLEASE TYPE YOUR ANSWER OR UPLOAD DOCUMENT IF REQUIREMENTS MENTIONED ABOVE ARE NOT MET I WILL GIVE A NEGATIVE RATING

Answer 1

What is income Statement- Income Statement is a document\proforma\statement which shows\represents business’s net gain\loss (performance during a particular period) by defining sources of income (revenue inflow) and ways of expenditure (expenses outflow). So first to consider that why business is done- obvious to make profit\gaining surplus. So, Income statement just helps to bring all income items and expenditure reasons (along with amount) at one place and calculates net gain\loss (which you can call performance).

What information it provides- Performance of business (gain\loss), sources of income, expenditures

Importance of income statement to business owner- Income statement is most important to judge performance of a business. Suppose you are running a business and it involves lots of transactions. You are doing accounting for all the transaction but what when you don’t know how your business is going on, what gain\loss you are making. Following are the points for this-

• It shows performance of business or performance indicators (ratios)
• It shows sources of income
• It also helps to know what the reasons are and where business is expending its money
• Income statement shows where the growth is going
• Helps owner to compare with market and help to make strategies accordingly
• Helps owner to get finance or more investment participants for business
• Helps to understand core area to improvement (cost cutting\may be more charge of interest)

What is Balance Sheet- Balance sheet is a statement showing actual position of business (as of day) that what are assets it is having, what are liabilities it is having and how much stockholder’s equity\investment is there.

Information provided by Balance sheet-

• Position of business (just like Health of a human being)- that how much fit it is
• All assets held by business (what are areas it has invested its money)
• All liabilities (what are the payables and finance sources, business is having)
• Part of shareholders investment in business
• Nature of assets and liabilities (long term or short term, fixed or current)

Importance of Balance Sheet to Business Owner:

• Helps to calculate finance needs of business
• Helps to know about where the investments are
• Helps to mitigate risk by maintaining proper balance between duration of liabilities and assets
• Helps to know nature of capital structure of business
• Helps to know actual worth of business (how much worth it is having i.e. net assets value)
• Helps to get confidence of stakeholders of business