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An income statement is essential for the company to measure revenues in a given time. Often it allows the business to track all of its costs and incomes, enabling the board of directors to build predictions and financial projections for the upcoming years. Some people argue that an income statement has more disadvantages rather than benefits. The discussion post above, for instance, argues that income statement has two drawbacks. The statement about the disadvantages is right, but also there are advantages of the income statement to be added.
The income statement reveals the details of the revenues that the organization made within a certain period, which enables it to determine which products and services bring the most profit and enhance them. Some companies fail to identify non-operational and operational factors that bring revenue (Tanase, Calota, & Oncioiu, 2018). For example, profit sometimes occurs from different investments, which is a non-operational component. Payment might also appear from various sales that have not been tracked. Therefore, the income statement is an ideal instrument to observe all revenues earned by the company.
The income statement is also an instrument for the investors to analyze the company’s profitability. However, it is often argued that the income statement might be misinterpreted by the investors, which is not beneficial for the company (Reimers, 2011). However, investors will not need to doubt the organization’s profitability if the company gains clear profits that generally outweigh the costs. Moreover, since an income statement is a single tool that can help judge the company’s condition, it can allow the company to avoid providing any further information other than the income statement.
In summary, the income statement is advantageous in providing detailed information about the company’s revenues and giving investors a database to analyze the organization’s condition. Nonetheless, there exists an opinion that income statements might lead to miscomprehension and misjudgment by investors. However, it has been argued that if the company makes a clear profit, the income statement analysis will benefit the company.
References
Tanase, Calota, & Oncioiu (2018). The Impact of IFRS 16 on the Companies’ Key Performance Indicators: Limits, Advantages, and Drawbacks. Academic Journal of Economic Studies, 4(1), pp. 54-60. Web.
Reimers, J.L. (2011). Financial Accounting: A Business Process Approach (3rd ed). Pearson.
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