Question

On your own words, explain the purpose and the importance of the income statement, and prepare the income statement for Max company based on the following information taken from the trial balance in December 2018

Revenue 70,000

Supplies expense 3,000

Rent expense 6,000

Wages expense 22,000

Answer 1

income statement : income statement is one of the financial statements records the company revenue items and expenditure items , it is prepared for the particular time period (for one year). income statement provides the financial performance of the business over the specific time period . it provides the summary of company's revenues and expenditures .

purpose : the purpose of the income statement is to know ,how much profit or loss earned during the particular time period .

importance

1) income statement provides the financial performance of the business by providing the profit or loss over the specific time period

2) it is used for preparation of further  financial statements like balance sheet and cash flow statements .

3) income statement provides the classification of different expense items and revenue items .

4) it is used for knowing the earning capacity or profitability of the business .