2. The income statement reveals net earnings (net income) of a firm for a period of...

2. The income statement reveals net earnings (net income) of a firm for a period of time.

Explain how “net earnings (net income) of a firm for a period of time” is different from each of the following descriptions:

? resources and equities of a firm at a point in time

Usually record

? resources and equities of a firm for a period of time

? net earnings (net income) of a firm at a point in time

Solutions

Expert Solution

The income statement is prepared for a period, say a financial year or 6 months which reflects the revenue generated and expenses incurred during that period. Income left after deducting all expenses is known as the Net Income of the firm for that particular period of time.

It is different from:

Resources and Equities at a point in time: Equities reflect the capital contribution held by the firm at a point in time i.e. on the day the statement is made, Resources and Equities reflect the position of the firm at a point in time i.e. on the day the statment is prepared, It may contain the resources acquired and equities raised before the period for which the Income Statement has been prepared.

Resources and Equities of a firm for a period of time reflects the resources acquired and capital raised within a period of time and is completely different from the Profit/Surplus Income of the firm.

Net Earnings/Net Income at a point in time reflects the net income balance on a particular day. It may contain the net income generated prior to the period of Income Statement, That's why different from Net Earnings of a firm for a period of time.

ekkarill92 answered 1 year ago

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