Why Are Income Statements And Balance Sheets Important

The other important documents are the balance sheet the cash flow statement and the statement of shareholder s equity.

Why are income statements and balance sheets important. The income statement totals the debits and credits to determine net income before taxes the income statement can be run at any time during the fiscal year to show a company s profitability. Meanwhile people often compare a company s balance sheet to others in the same business. The income statement is distinct from the balance sheet. The other name for income statement is p l profit loss statement.

Balance sheets are also important because these documents let banks know if your business qualifies for additional loans or credit. The income statement or profit and loss report is the easiest to understand it lists only the income and expense accounts and their balances. Banks investors employees and anyone else interested in a company can review these reports and see how much money is coming into and going out of the business the types of expenses the business has and whether or not the business is profitable. Balance sheets help current and potential investors better understand where their funding will go and what they can expect to receive in the future.

It is very much important for all business. The income statement shows how the revenue is generated through a product or service sale the related expenditure and gross or net income. A balance sheet lists assets and liabilities of the organization as of a specific moment in time i e. Financial statements include the balance sheet income statement and cash flow statement.

The income statement is used to give a summary of the company s revenues and expenses over a specific period of time. An income statement also called a profit and loss account or p l. As of a certain date. An income statement shows revenues and expenses over a period of time.

In financial accounting the balance sheet and income statement are the two most important types of financial statements others being cash flow statement and the statement of retained earnings. For example the period may be a month a quarter or a year. Financial statements such as balance sheets and income statements provide an overview of your business s financial health. This is because the balance sheet is a snapshot of a company s assets and liabilities at a single point in time not spread over the course of a year such as with the income statement.

The income statement is one the major financial statements used to analyze a company.