0
The income statement is part of the "Profit and Loss" ("P&L") statement. Here you state what is accounts receivable and what is paid, and end up with a profit or a loss.
Now that is taken on to the balance, to make a profit is an asset, while a loss is a liability that has to be covered. So, in the balance, the profit appears as an increased bank deposit, or that you have increased inventory and bought cars and other things for the profit - or paid off debt.
Now if you have made a loss, your debt should be increased, and your bank deposit decreased or you may have sold off inventory to pay off. This is seen in the balance.
Taking the entire profit and use it to pay debt will decrease the balance, which bluntly does not look good. Here a good accountant makes a difference, place the profit to impress the bank and shareholders, articulate that you are doing fine by "pruning" the balance according to GAP rules that also makes the bank smile.
Wiki User
∙ 11y ago
Add your answer:
Earn +20 pts
Are balance sheets ordinarily projected after income statements?
Balance sheets are ordinarily projected after income statements because the firm's growth in retained earnings, an outcome of projected income, is a required input for the balance sheet.
When applying for a loan from a bank why is it important to have income statements and balance sheets?
Banks would like to know if you are able to pay back what you are borrowing, so it is vital that you show proof of income and assets,, it is with these statements that they can assess and approve the amount of your loan.
How do you construct a statement of cash flow from income statements and balance sheets?
Constructing a statement of cash flow from income statements and balance sheet is no simple task and requires training. Most CPAs can do this, but not all. Unless you are a professional finance person or accountant, I suggest you hire an accountant to do this. Additionally, please be aware that financial statements prepared in accordnace with GAAP, usually include a cash flows statement with the income statement and balance sheet.
Why do you think the SEC requires that balance sheets provide two years of comparative financial information and income statements provide three years of comparative financial information?
Income statements contain more data that can be extrapolate and inferred from by investors than the balance sheet does. For more accurate extrapolations, the SEC requires 1 more year of information for the income statement.
What is book adjustment in accounting?
Book accounting is the method of accounting used within a company. This method utilizes ledgers, financial journals, balance sheets, and income statements.
Could you explain Accounting 101?
Typically, it involves the theory of credit and debit, balance sheets, income statements, controlling accounting accounts, subsidiary ledgers, work sheets, depreciation methods, and basically financial accounting theory.
Why the balance sheet is a more important statement than income statement?
The balance sheet is no more or no less important than the income statement. The balance sheet provides a snapshot of the business as it stands at a given point in time and the income statement shows how the business got there. Together with the statement of cash flow (which can be constructed using multiple years of income statements and balance sheets), these three financial documents help clearly define the financial health of the business.
Why Balance sheet is a more important statement than income statement?
The balance sheet is no more or no less important than the income statement. The balance sheet provides a snapshot of the business as it stands at a given point in time and the income statement shows how the business got there. Together with the statement of cash flow (which can be constructed using multiple years of income statements and balance sheets), these three financial documents help clearly define the financial health of the business.
Why the balance sheet statement is more important than income sheet?
The balance sheet is no more or no less important than the income statement. The balance sheet provides a snapshot of the business as it stands at a given point in time and the income statement shows how the business got there. Together with the statement of cash flow (which can be constructed using multiple years of income statements and balance sheets), these three financial documents help clearly define the financial health of the business.
What types of information can be found in a financial report?
Depending on the type of financial statement requested, there is a wealth (pun intended) of information that can be found in financial reports. Such information can include balance sheets, as well as income statements. Balance sheets are very useful as they provide the information for a company, including it's assets, equity, and liability. This will provide a "snapshot" of sorts of a company, allowing one to access information that may not be knowingly readily available to the public. Income statements are also a great source for anyone interested in knowing what a company has earned over time. These types of statements are useful for accountants, shareholders, and anyone interested in investing in a company.
What are the 3 basic financial statements?
Balance Sheet Statement of Income Statement of Shareholders (Owners') Equity Statement of Sources and Applications of Cash (or Funds) Balance Sheet Statement of Income Statement of Shareholders (Owners') Equity Statement of Sources and Applications of Cash (or Funds)
Pro-forma balance sheet?
Proforma: Description of financial statements that have one or more assumptions or hypothetical conditions built into the data. Often used with balance sheets and income statements. Example: Provided to show rent or income projections (typically it is the NOI - Net Operating income - that is looked at in this application) upon acquisition of Commercial Real Estate or a Business, so as to justify the obtaining of financing for the purchase - Used to demonstrate the Borrower's ability to repay the loan based on income projections taking into account Mortgage or loan terms, and actual or projected income based on reasonable and qualified assumptions.
