The income statement is the mirror of the inflow and outflow, a company has observed during the period for which it is prepared. The various aspects of the income statement can be understood only with the help of brief description about the terminology of the entries that are ultimately shaping the income statement of a business. The income statement has two-sides, one is the income and the other is the expenditure sides. The left is always expenditure and right are always the income. The expenditure side has “To” ahead of every expense mentioned in it. The income side has ” By” ahead of every income mentioned in it. The balance is never carried forward of this statement. The balancing figure is either a profit or a loss.

The time period for which the income statement is prepared is reflected as ” Income statement of ………. for the period ending on 31-03-2018″. The format reflects one calendar year that starts from 01-04-2017 and ends on 31-03-2018. The company that is presenting the Income statement has its name on the top of the statement. The currency used to reflect the statement is reflected at the top on the right-hand side of the statement. The statement has many entries on the expenditure sides and many to the income sides. the common thing between them is the amount that is reflected in the grand total of the amount that is achieved by the journal accounts prepared through the journal entries passed.

The presentation of the financial statement canvarybut are authenticated by the management and are prepared by the Finance Department of the company. Gone are the days to prepare them manually, now they are prepared by using the computer. The specific software for maintaining the electronic records of accounting is known as Tally software. It is used by the accountant to keep the record of the various transaction entered by the business during a particular period for which income statement is to be derived.

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The expenditure are the variable costs incurred by the company along with the depreciation. The expenditure is of revenue nature and not of capital nature. The revenue nature is the type of expense which will be written of within one year and the capital expenditure is charged over a period longer than one year.The various expenses that are located in the income statement are the payments made to the suppliers, administration costincurred, income tax paid, audit fees paid, raw material cost incurred, payments made to the labour and the various other variable expenses along with depreciation. The amount that is charged on the fixed assets representing the wear and tear that are caused to the fixed assets over the passage of time are reflected as depreciation.

The various aspects of an income statement can have expenditure more than the income then it is reflected as deficit and vice versa is reflected as profit. The deficit is represented when the expenses incurred are more than the income earned by the business. The profit is achieved when the income is more than the various expenses charged. The statement is following the rules of debit and credit. The expenses which are actually incurred and the incomes which are actually earned are reflected through a proper format which can vary according to the size of the business activities incurred by the business.

As per the various laws applicable to the accounting along with accounting policies have the major role to guide the accounting followed by the company. They vary according to the size, type, and nature of the business. The guiding principles are binding on the company to maintain the books of accounts. The companies act 2013 has a separate sec 128 on the books of accounts to be kept by the companies and they reflect the importance of the Accounting Standard andnon-fulfillment of the same can attract fine as well as the imprisonment for the authorities expected to maintain the same. The following points can help to represent the importance of the income statement in a business:
It reflects the true and fair view of the expenses incurred and income earned during a specified period reflected in the income statement.
It is a summarised representation of the various transactions entered by the company comprising inflow and outflow of money.
It is maintained as per the guiding principles and help to have a look at the expenses that can be easily avoided in future by the company.
The experts can analyse the statement to increase the forecast profit or overcome the loss in coming future.
It can attract more investors towards the business. Hence, increasing the capital of the business.
It would help to prepare the comparative analysis of the past performance of the business.
It would represent the expenses that need the attention of the management and can be lowered down.

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The accountant can make a whole picture of the possibilities of increasing the profit margin or decreasing the same as per the incomestatementprepared.

The income statement is the better representation of the income and expenses incurred during the period by the business and the expenses which are variable as per the production activity’s incurred. The income is mainly through the sales and the other are the interest earned on theinvestment made with the help of ideal cash with the business.

The tax accounting is also reflected by the income statement as the same is attached while filling the ITR for the relevant AY.

The tax is paid on the profit arrived by the income statement.

The authenticity of the various other aspects of the statement can be observed by verifying the Journal accounts maintained by the accountant along with the journal entries passed by him/her. The best electronic way to do the same is Tally Software. The entries are entered manually but the statement is automatically affected by the entries made by the accountant. At the end of the period, the statement can be extracted from the software very easily. The same is attached to the financial statements of the business when it is a company especially a private or public limited.

Would you like to read more about this topic? This book might interest you: Crash Course Income Statement.