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:
- Items that might be relevant but cannot be reliably measured are not reported (e.g. brand recognition and loyalty).
- Some numbers depend on accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level).
- Some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value).
Guidelines for statements of comprehensive income and income statements of business entities are formulated by the International Accounting Standards Board and numerous country-specific organizations, for example the FASB in the U.S..
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:
Read more about this topic: Income Statement
Famous quotes containing the words usefulness and, usefulness, limitations, income and/or statement:
“This monument, so imposing and tasteful, fittingly typifies the grand and symmetrical character of him in whose honor it has been builded. His was the arduous greatness of things done. No friendly hands constructed and placed for his ambition a ladder upon which he might climb. His own brave hands framed and nailed the cleats upon which he climbed to the heights of public usefulness and fame.”
—Benjamin Harrison (18331901)
“This monument, so imposing and tasteful, fittingly typifies the grand and symmetrical character of him in whose honor it has been builded. His was the arduous greatness of things done. No friendly hands constructed and placed for his ambition a ladder upon which he might climb. His own brave hands framed and nailed the cleats upon which he climbed to the heights of public usefulness and fame.”
—Benjamin Harrison (18331901)
“The only rules comedy can tolerate are those of taste, and the only limitations those of libel.”
—James Thurber (18941961)
“Work though we must, our jobs do not automatically determine our priorities concerning our marriages, our children, our social life, or even our health. Its still life, constrained as it may be by limited disposable income or leisure time, and were still responsible for making it something we enjoy or endure.”
—Melinda M. Marshall (20th century)
“Truth is that concordance of an abstract statement with the ideal limit towards which endless investigation would tend to bring scientific belief, which concordance the abstract statement may possess by virtue of the confession of its inaccuracy and one-sidedness, and this confession is an essential ingredient of truth.”
—Charles Sanders Peirce (18391914)