Income Statements
Essay Preview: Income Statements
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Week Two Weekly Reflection
Income statements are useful because they help the users evaluate the past performance of the company. In addition, they provide a basis for predicting future performance, and helps assess the possibility of achieving future cash flows. Another important concept is understanding the limitations of income statements. One limitation is that companies can omit items that cannot measure reliably. Another limitation is the accounting method can affect the numbers. The last limitation is that the income measurements involve judgment. These are concepts that are easily understandable (Kieso, Weygandt & Warfield, 2012). Another easy concept to understand is the elements of an income statement. The elements of the income statement are revenues, expenses, gains, and losses.
There are two income statement forms. Single-step income statements include the bare essentials of a companys income including revenues and expenses. The simplicity of the single-step income statement is an advantage. The multiple-step income statement enhances the comparability of the companys income statement with others in the same industry by breaking out operating and non-operating activities and classifying expenses by function like selling or administration and breaking them down in more detail. The expanded version of the income statement provide the components necessary for analysts to compute ratios that aid in assessing a companys performance (Kieso, Weygandt & Warfield, 2012). Some may find the multiple-step income statement more confusing than the single-step income statement. The educational organization of one team member is not necessarily required to prepare many financial statements because there are not investors in the normal sense. The treasurer does compile a detailed report of accounts and current financial standings on a regular basis for presentation to our Board. Another team member understands the format of the different income statements, but it does not pertain to her employment at this time. Another one of the team members also understands the format of income statements but does not use them in her employment either.
Guidelines for revenue recognition seem simple because they are stated that the revenue must be realized or realizable meaning that the company must have sold and delivered the products/services to the customer and be eligible to