Income statement and its importance


An income statement is an important part of accounting. Every business or organization has its income statement. An income statement is generated because there are always some expenses and a revenue is generated through those expenses.

Income statement exhibits an organizations expenses and what are the outcomes or the profit and loss gained within a specific time period.

These statements help the businesses to keep an eye on the financial activities being carried out in their organization in a simplest way possible. Many organizations have their own experts to make the income statements some may outsource the experts for fairer and reliable outcomes. Many agencies like bookkeeping and accounting firms in Dubai are providing wide range of services in the field of accounting.

It becomes hard for the business owners to keep track of their financial activities or to check the activities on daily basis. That is why income statements are playing a great role in helping the business owners to keep track of their financial activities.

What are the four major parts that you will find in an income statement?

While looking at the income statement your eye will witness the four important and only parts of the income statement. These are expenses, income, profit and loss. These four parts are interlinked and are interrelated to one another. We will discuss how these factors are interlinked and why these factors are mentioned in the income statement.

  1. Expenses: In an income statement this column represents the amount being spent on number of goods and resources in a certain time period. These expense also includes the labor cost along with the cost of good. This column will be helpful in identifying the profit or loss.

Other benefit that this section provide is that, it will help the owner to know the amount being spent on certain items and tasks. Which resources are required higher amount of money.

  1. Income: This section is all about what the company has received back in return of its expenses. This will tell which areas are more likely to be beneficial for the organization. Which areas had the greater number of sales for a specific year and so on?

If the income on the income statement is greater than the expenses then it is not wrong to say that the company is more likely to be progressing and has earned some profit.

  1. Profit: An organization will get the profit in the form of resources and money. If we talk about the profit in an income statement, it should not be zero and the result of subtraction between the two factors expenses and income should always remain positive.

Positive figures in the end of income statement means profit has been achieved.

  1. Loss: If the figures at the end of the income statement after subtracting expenses from the income is negative then that firm is likely to be said in loss.

If the expenditures are greater in figure than what has been earned within a mentioned time period loss is earned. And strategies are developed by looking at the expenses and factors that resulted in the loss of the company.

Where to look at in the income statement?

If you are not an account expert then you can still get the idea about the profit and loss of your company.

You have to look at the end of the income statement where you will find all the answers about the profit and loss. Also income statement has entities which tells about the factors resulting in higher expenses and income.

Importance of income statement

Income statement is important in many ways and aspects. One of them is that this is the complete summary of an organizations revenue and exhibits the progress of the company in a specific time period.

Another benefit that comes with income statement is that investors make decisions by looking at the income statements on whether to invest or not. If the per year income is greater, the investors will be persuaded to invest in the company. This will help the company grow and stand out in the crowd.

Do small business have income statement?

All the businesses small or large develop income statements for their ease. Small businesses also need an income statement to know how well their business is growing, what is the pace at which their business is developing.

This will help them in future planning on how to improve to generate higher profits and avoid loss. What were the factors that resulted in the loss and how to improve mistakes in the future?

Many take expert advice on improving their mistakes and in growing their business. If you are also in search of an expert bookkeeping and accounting firms in Dubai will be the best possible option for you and your business to grow.



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