What is Income Statement?

XXXX Misc. expenses XXXX Total operating expenses XXXX Earning before interest and taxes XXXX Less: Financing Costs XXXX Earning before tax XXXX Income Tax XXXX Earning after tax XXXX

 

Benefits of Income Statement

Following are the main benefits associated with the income statement which the stakeholders can avail.

• Through income statement shareholders can know the profitability they earned on the capital invested. Income statements enable the shareholders to judge the efficiency of the management for converting their capital into profitability. They can make the managers accountable.

• Lenders and creditors can judge the past performance of the company and make decisions regarding extension of credits and debts.

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• Management can critically evaluate the performance and take corrective measures. Income statement helps management in determining the dividends to be distributed and investments from internal sources.

• Employees can compare the remunerations with profitability and can talk to the management for their benefits.
• Government agencies such as tax regulators can be able to determine the tax and other liabilities of the companies.

Limitations of Income Statement

Though quite comprehensive but income statement also depends upon some approximations or judgments such as depreciation etc and further it also may vary according to the accounting policies adopted by the company. Accounting policies may be regarding inventory valuation methods and depreciation methods etc.