The Definition of Financial Statement Essay

1111 WordsFeb 15, 20145 Pages
Financial statement is a written report that depicts the financial condition of a company which is being reported quarterly or annually. The statements usually include an income statement, balance sheet, statement of cash flow, and statement of retained earnings. The purpose of financial statements is to act as an important instrument to predict the future and to show the company’s weaknesses and strengths which are crucial for decision-making. Starbucks Coffee’s provides income statement, balance sheet, statement of cash flows, and statement of retained earnings. 1. Income Statement Income statement is the financial statement of a company that indicates how the revenue from sale of products and services is transformed into the net income by taking away the expenses. The outcome of the calculation is known as the “bottom line” or the profit. The purpose of income statement is to provide the managers and investors whether the company gains or lost money during the period reported. There are two basic types of income statements; single-step and multi-step. Starbucks Coffee’s income statement is presented in a multi-step income statement format. A multi-step format is one that has more than one subtraction in determining the net income. In the single-step format, net income is obtained by subtracting expenses from the revenue. However, in the multi-step income statement, first, the company needs to calculate their gross profit by subtracting cost of good sold from the total sales. Then, the company needs to take off all operating expenses from the gross profit to determine operating income. Operating expenses usually consist of selling expenses such as advertising expenses, and administrative expenses such as office supplies expenses. After operating income is calculated, then other revenues and gains should be added and other expenses and losses should be

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