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

Ans.	Purpose and Importance of Income Statement:
	The earning capacity of a firm is reflected by by Income statement. The purpose of income statement
	is to depict the summary of revenues, expenses and net profit or loss of a business entity for a certain
	period of time.
	Income statement is important because it accumulates the economic data. Income statement measures
	the net income or loss of the company . It communicates information regarding the operating results of
	the firm to the owners and other parties interest in the firm.
	MAX   COMPANY
	Income Statement
	For the Year Ended December 31, 2018
	Particulars	Amount	Amount
	Revenues		$70,000
	Total revenue (a)
	Less: Expenses:
	Supplies expense	$3,000
	Rent expense	$6,000
	Wages expense	$22,000
	Total expenses (b)		$31,000
	Net Income (a - b)		$39,000
	*Net income is the excess of total revenues on expenses.