Making a Profit
Accountants are responsible for preparing three primary types of financial statements for a business. The income statement reports the profit-making activities of the business and the bottom-line profit or loss for a specified period. The balance sheets reports the financial position of the business at a specific point in time، ofteh the last day of the period. and the statement of cash flows reports how much cash was generated from profit what the business did with this money.
Everyone knows profit is a good thing. Its what our economy is founded on. It doesnt sound like such a big deal. Make more money than you spend to sell or manufacture products. But of course nothings ever really simple، is it? A profit report، or net income statement first identifies the business and the time period that is being summarized in the report.
You read an income statement from the top line to the bottom line. Every step of the income statement reports the deduction of an expense. The income statement also reports changes in assets and liabilities as well، so that if theres a revenue increase، its either because theres been an increase in assets or a decrease in a companys liabilities. If theres been an increase in the expense line، its because theres been either a decrease in assets or an increase in liabilities.
Net worth is also referred to as owners equity in the business. Theyre not exactly interchangeable. Net worth expresses the total of assets less the liabilities. Owners equity refers to who owns the assets after the liabilities are satisfied.
These shifts in assets and liabilities are important to owners and executives of a business because its their responsibility to manage and control such changes. Making a profit in a business involves several variable، not just increasing the amount of cash that flows through a company، but management of other assets as well.
