Application of Financial Statement
Dr. Tawfiq Abu-Raqabeh
Financial Accounting Summer 2011
Sunday September 11, 2011
Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.
A balance sheet and an income statement both can be very useful and applied to someone’s everyday life, whether one is attempting to keep a closer eye on their finances or trying to become a wiser spender. An income statement is “a financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time” (Weygandt, Kimmel, & Kieso 2010) while a balance sheet is “a financial statement that reports the assets, liabilities and owner’s equity at a specific date (Weygandt, Kimmel, & Kieso 2010).” Personally, an income statement would be most useful to me. Although I do not own a company, a financial statement that lists all my revenue and expenses that come in on a monthly basis would help to organize my lifestyle and to ensure that bills are paid on time and in full. It would also help to keep track of exactly how much money I have so that I do not over spend and have more money available to save. Applying an income statement to my everyday life would definitely have a positive outcome on my finances and quality of life general.
Using the same concept selected above, discuss how a business manager may benefit from an understanding of this statement.
An “income statement reports the success or profitability of a company’s operations over a specific period of time […] It is prepared from the data appearing in the retained earnings column […] the income statement lists revenues first, followed by expenses, finally the statement shows net income (or net loss) […] it does not include investment and dividend transactions between the stockholders and the business in measuring net income (Weygandt, Kimmel, & Kieso 2010).” A business manager can...