Application of a Financial Statement

Assignment 1: Application of Financial Statement

Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.

An income statement can be used to manage a family budget by summarizing all incoming money and tracking expenses over a period of time to determine if there is a deficit or a gain. Income statements list all revenues first, for a family this can include income from a job or any other types of payments received that contribute to the household income such as child support, disability, social security or any other type of income. When all the income received in the household is totaled up, the next section of the income statement shows expenses that must be paid. Household expenses include Rent or mortgage payments, utilities expenses, food, childcare and many others. If the expenses are higher than in the income it will show on the income statement as net income. If the expenses are higher than the income, a net loss will result. The information on the income statement can be very helpful for a family to determine their financial situation for that period of time so adjustments can be made if necessary for the next budget period. When earnings may change from period to period, such as the case of a high workload resulting in overtime hours, the income statement can be used to get a snapshot of just that time period so it is easy to see what a family can expect to have on hand and if they need to make lifestyle adjustments to compensate for fluctuating income.

Using the same concept selected above, discuss how a business manager may benefit from an understanding of this statement.

The income statement can help the business manager to make decisions that are dependent on periodic income performance. It helps them to compare past performance to current performance and they can use this information to for a variety of reasons. They may want to add employees during a certain time of the year but since they know from past income statements that they have peak periods, they may decide to add seasonal employees instead of full time permanent employees. They may be able to see that expense are very high on items that they can change such as vendors that supply paper products or even the coffee in the break room. This can prompt them to look elsewhere for these types of items. This information can also be very valuable when trying to determine the right time to make high dollar purchases because the net income supports such expenditure.

Discuss how your understanding of the balance sheet and income statement may be applied to your current or future position.

I hope to work in purchasing for my company. The information on the income statement can be used to determine when a different supplier may be needed because