Question

What information is reported in a balance sheet? In an income statement? Why does the user of an income statement need to know the time period it covers?

Answer 1

A balance sheet reports the company's assets, liabilities, and owner's equity (or stockholders' equity) in terms of dollars as of a previous date. Assets include cash, accounts receivable or debtors inventory, investments, land, buildings, equipment, some intangible assets, and others. Liabilities are obligations with respect to the company as of the balance sheet date. These include loans payable, accounts payable, warranty obligations, taxes payable etc.The stockholders' equity or owner's equity depicts the amount of the assets that came from the owners and not from its creditors. Balance sheet should be report information in the form of notes which discloses additional information regarding the financial position of the company and also information about future liabilities that have not featured in the balance sheet as they are potential liabilities and not actual liabilities

The income statement is used to report information on the revenue and expenses and the net income earned in relation to the company over the entire reporting period. The operating section of the income statement reports information on the Revenue and Expenses. The revenue portion discloses information on the cash flows or other increases to the assets of the company and the Expenses portion discloses information on the cash outflows, liabilities incurred etc. and the non-operating section reports information on interest expense and income taxes expense.

User of an income statement needs to know the time period it covers because it is over this period that all the business transactions accumulated in the financial statements have been incurred. This also helps the investor as it becomes possible for them to compare the performance results of successive periods.