Application of Financial Statement Assignment Example | Topics and Well Written Essays - 750 words

Application of Financial Statement - Assignment ExampleThus, in everyday disembodied spirit, the Income tale rout out be quickly and well drawn up to show whether a person is generating positive income or a loss. If the person is incurring a loss, the income statement shows why this is so by providing a disengagement of the expenses incurred. The individual can then know which expense is larger than the opposites and which expense can be easily controlled (Fridson & lvarez, 2002). For instance, genuine expenses such as house rent, fuel, heating and lighting of the house maybe unavoidable, but certain expenses such as food items may be controllable. The purpose of this statement in everyday life is to ensure better control over expenses and how to economize on these expenses in order to generate capable income. The design of sufficient income again varies from individual to individual so there is no such concept of a perfect income or desirable income. However, the idea is to prevent individuals from going into a loss by allowing them better control over their expenses and inducing them to save rather than spend. In a business setting, the income statement simply draws a comparison between revenues and expenses, showing which is higher. The usefulness of an income statement for business managers is not confine to the numbers per se. Ratios calculated by using these numbers provide more useful information for finding making. The income statement, to this end, provides a quick assessment of the firms overall risk from operations, improvementability and flexibility of its operations. For instance, the fade on Investment is calculated partially by using the income statement and partially by the eternal sleep sheet. The Gross and Net Income figure provided by Income Statement is used in a lot of other ratios, such as Gross Profit Margin, Net Profit Margin, Return on Assets, and Return on Equity etc. The Gross Profit Margin is simply found by dividing gr oss profit by sales, which indicates how much profit is earned perdollar of sales, taking the cost of goods sold into account (Wild, 2006).