Income statement purpose to a retail store benefits and challenges PDF

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Income statements benefits and challenges and it's purposes...

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What is the purpose of an income statement in a retail business ? Income statement reflects the income earned and expenses paid net of either profit or loss for a period and it is very important for retail business because it can measure the company performance on how it conducting its operation . Retail P&L statements provide valuable information about the current state of a retail business. They show whether a business is “in the red” — meaning they had more expenses than revenue — or if they are bringing in profits. Business owners can use these statements to plan for the future and make decisions about improving their budget and focusing their sales efforts. Retail income statements are an easy way to see if a business needs financial support to thrive. Sometimes it just takes a little assistance from a lender to boost profits through the roof. The income statement examines a particular period of time of the business, considering all the expenses and income received in that time-span and breaks it down until only net income remains. It provides information regarding risk, financial flexibility, return on investment and operating capabilities involved in a business Which income statement did you choose ? 

simple income statement format

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Why did you choose this format? The income statement is an accounting tool that reports a company’s financial performance over a specific period, providing a summary of the business’s revenues and expenses from operations and non-operational activity. Retail businesses have retail profit and loss statements produced monthly to measure the success of the business. The retail profit and loss statement can also be used to predict future months’ incomes and expenses. Many retail business owners are unaware of how to read and utilize retail income statements.

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What are the benefits and challenges of your statement choice for each stakeholder group?

a. Provides detailed information on revenues:The income statement provides detailed data on revenues. Besides the normal costs such as the cost of goods sold (COGS),

employee expenses, operational expenses, it also accounts for additional costs like taxes applicable. Similarly, on the revenue front, it accounts not only for revenues earned from sales but also factors in for revenues gained from non operational components like interest accrued by different investments. Hence, the income statement is an ideal source for complete revenue information. b. Database for Investor Analysis: It is an important document for investors who need detailed information before investing into any company. It provides all the data from sales to profits, operational efficiency to other non operational aspects. All this cumulatively helps investors get a clear picture of how the business is and expected to be. Thus, it is a single source to judge the condition of a company. c. Other benefits: The income statement shows the profitability of the company over a period of time. The company can determine the major revenues it has earned. Secondly, it is significant because it is based on the matching principal and shows the expense incurred by a company to earn the revenues. From an investment perspective, shareholders of a company are interested in the net income because the dividends are paid out of the total income. Moreover, income statement also helps the companies analyze their expenses and take into account the major streams of operating revenues of the company.

Disadvantage a. Misrepresentation of data:The income statement includes not only current revenues gained from sales but also the money due from accounts receivable which the business has not paid yet, just as it includes liabilities as expenses that have not actually been paid yet. Also, the large one-time expenses or revenues can drive the income sharply up or down from what it actually should be. This leads to misrepresentation of the success of the company b. Other factors:The income statement helps in gauging the earnings per share and other past financial data, but it does not provide with data on the expected future growth. It does not give any indication on how the revenue generation happens. A business may be underpaying employees and overcharging customers to create its profits, practices that will eventually cause business problems but show as positives on the financial document. Any investor looking into the income statement has to have these additional factors also in mind before taking any financial decision. One needs to remember that the income statement is considered as a fiction because it is based on accrual accounting and it does not provide cash transactions. Free cash cannot be calculated through income statement...