Income Statement: Usefulness And Limitations Of Income Statement
Related Resources : Income Statement
Usefulness And Limitations Of Income Statement
Income statements should help investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of generating future cash flows through report of the income and expenses.However, information of an income statement has several limitations:
- INCOME STATEMENT GREENHARBOR LLC -
For the year ended DECEMBER 31 2010
GROSS REVENUES including INTEREST income 296,397
BANK & CREDIT CARD FEES 144
LEGAL & PROFESSIONAL SERVICES 1,575
PRINTING, POSTAGE & STATIONERY 320
TOTAL EXPENSES 195,512
Names and usage of different accounts in the income statement depend on the type of organization, industry practices and the requirements of different jurisdictions.
If applicable to the business, summary values for the following items should be included in the income statement:
Expenses recognised in the income statement should be analysed either by nature raw materials, transport costs, staffing costs, depreciation, employee benefit etc. or by function cost of sales, selling, administrative, etc.. IAS 1.99 If an entity categorises by function, then additional information on the nature of expenses, at least, – depreciation, amortisation and employee benefits expense – must be disclosed. IAS 1.104
The major exclusive of costs of goods sold, are classified as operating expenses. These represent the resources expended, except for inventory purchases, in generating the revenue for the period. Expenses often are divided into two broad sub classicifications selling expenses and administrative expenses.
Irregular ItemsThey are reported separately because this way users can better predict future cash flows - irregular items most likely will not recur. These are reported "net of taxes".
However, "changes in estimates" e.g. estimated useful life of a fixed asset only requires prospective changes. IAS 8
No items may be presented in the income statement as extraordinary items under IFRS regulations, but are permissible under US GAAP. IAS 1.87 Extraordinary items are both unusual abnormal and infrequent, for example, unexpected natural disaster, expropriation, prohibitions under new regulations. Note: natural disaster might not qualify depending on location e.g. frost damage would not qualify in Canada but would in the tropics.
Additional items may be needed to fairly present the entity's results of operations. IAS 1.85
Earnings Per ShareThere are two forms of EPS reported:
46 Related Topics about Income statementAmortization .. Balance sheet .. Cash flow statement .. Cash flow .. Comprehensive income .. Cost of Goods Sold .. Cost of Sales .. Depreciation .. Discontinued operations .. Discontinued operation .. Equity .. Expenses .. FIFO or LIFO accounting .. Gross profit .. Impairment loss .. International Accounting Standards Board .. International Financial Reporting Standards .. Model audit .. PnL Explained .. Profit model .. Revenue .. Statement of retained earnings .. Total comprehensive income .. Trading statement .. US GAAP .. absorption costing .. associates .. deferred tax .. earnings per share .. equity method .. expense .. financial statement .. fixed assets .. intangible assets .. interest expense .. inventories .. joint ventures .. net income .. non-controlling interest .. operating expenses .. other comprehensive income .. parent .. requirements .. statement of changes in equity .. statement of comprehensive income .. weighted average method ..
Sub-Topics for Income statement