Income Statement - Usefulness and Limitations of Income Statement

Usefulness and Limitations of Income Statement

Income statements should help investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses.

However, information of an income statement has several limitations:

  • Items that might be relevant but cannot be reliably measured are not reported (e.g. brand recognition and loyalty).
  • Some numbers depend on accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level).
  • Some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value).
- INCOME STATEMENT GREENHARBOR LLC - For the year ended DECEMBER 31 2010 € € Debit Credit Revenues GROSS REVENUES (including INTEREST income) 296,397 -------- Expenses: ADVERTISING 6,300 BANK & CREDIT CARD FEES 144 BOOKKEEPING 2,350 SUBCONTRACTORS 88,000 ENTERTAINMENT 5,550 INSURANCE 750 LEGAL & PROFESSIONAL SERVICES 1,575 LICENSES 632 PRINTING, POSTAGE & STATIONERY 320 RENT 13,000 MATERIALS 74,400 TELEPHONE 1,000 UTILITIES 1,491 -------- TOTAL EXPENSES (195,512) -------- NET INCOME 100,885

Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U.S..

Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions.

If applicable to the business, summary values for the following items should be included in the income statement:

Read more about this topic:  Income Statement

Famous quotes containing the words usefulness and, usefulness, limitations, income and/or statement:

    “This monument, so imposing and tasteful, fittingly typifies the grand and symmetrical character of him in whose honor it has been builded. His was “the arduous greatness of things done.” No friendly hands constructed and placed for his ambition a ladder upon which he might climb. His own brave hands framed and nailed the cleats upon which he climbed to the heights of public usefulness and fame.”
    —Benjamin Harrison (1833–1901)

    “But, in history, practical usefulness never determines the moral value of an achievement. Only the person who increases the knowledge humanity has about itself and enhances its creative consciousness permanently enriches humanity.”
    —Stefan Zweig (18811942)

    “The motion picture made in Hollywood, if it is to create art at all, must do so within such strangling limitations of subject and treatment that it is a blind wonder it ever achieves any distinction beyond the purely mechanical slickness of a glass and chromium bathroom.”
    —Raymond Chandler (1888–1959)

    “The question for the country now is how to secure a more equal distribution of property among the people. There can be no republican institutions with vast masses of property permanently in a few hands, and large masses of voters without property.... Let no man get by inheritance, or by will, more than will produce at four per cent interest an income ... of fifteen thousand dollars] per year, or an estate of five hundred thousand dollars.”
    —Rutherford Birchard Hayes (1822–1893)

    “Most personal correspondence of today consists of letters the first half of which are given over to an indexed statement of why the writer hasn’t written before, followed by one paragraph of small talk, with the remainder devoted to reasons why it is imperative that the letter be brought to a close.”
    —Robert Benchley (1889–1945)