Explain the generation of the Income Statement. Where does the information come from and how is it structured? Who uses this report and what information are they interested in? Do provide the textbook

Explain the generation of the Income Statement. Where does the information come from and how is it structured? Who uses this report and what information are they interested in? Do provide the textbook

Answer

Income statement is prepared to compute the earning of the company for a specific period of time. The income is calculated by deducting the expenses of a period from the revenue of that specific period of the company to arrive at the earning of the company in that specific period. This information is derived from the trial balance of the company that is prepared at the end of each period. The basic format of income statement is as follows:
Revenue                                                                                 = $xxxxx
Less: Cost of goods sold / cost of services rendered          = $xxxxx
Gross Profit                                                                           = $xxxxx
Less: Selling & Administrative expenses                           = $xxxxx
Operating Income                                                                 = $xxxxx
Less: Income tax expense                                                    = $xxxxx
Net income after tax                                                             = $xxxxx
The users of the income statement are:

• The existing stockholders who use this information to determine the expected return for the shares in the shape of dividend.
• The prospective stockholders who are interested to determine the company earning capability for making the investment decision.
• The Government to evaluate the tax collection based on the earning of the company.
• The lenders i.e. financial institutions to evaluate the pay back capacity and risk associated with their investment in the company.
• The employees to determine the financial stability of the company.