The income statement is not only an important benchmark related to the financial performance of a company but actually use more broadly, namely giving an assessment to each individual who is given authority and responsibility. That is, the purpose of the income statement is also useful as an evaluation of the performance of individuals or leaders, whether the company managed to achieve the target or not. In addition, if your company also requires experts who can record your financial statement accurately, we highly recommend you hire Bookkeeping Services Parramatta.
The following details the purpose of the financial statements included in the income statement.
1. Know the level of liquidity
The company’s ability to meet financial obligations when there is billing from creditors.
2. Know the level of solvency
Still related to debt, the level of solvency in order to determine the company’s ability to meet financial obligations. Usually, the assessment of solvency is divided into two periods, namely long term and short term.
3. Knowing the level of profitability
Profitability to show the ability of a company to make a profit for a certain period.
4. Company stability
Through the income and financial statements will be seen how much the company’s ability to maintain business continuity remains stable. This is measured by considering the company’s ability to pay installments regularly to shareholders without experiencing obstacles.
The income statement provides a more complete and detailed calculation of profit and loss of all results and costs for a certain period. In its preparation, there are four main principles that are upheld, such as:
1. The first part shows the income earned from the company’s main business, namely the sale of merchandise or services.
2. The second part shows business costs consisting of sales costs and general costs from the administration.
3. The third part is other results and other expenses, which do not originate from the company’s main business but often arise in the company’s activities (non operating income and expense).
4. The fourth part shows incidental profit or loss (extraordinary gain or loss) so that finally a net profit is obtained before deducting or being paid company tax (PPS).