Income Statement


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Income statement of Hindalco PVt. Ltd.

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Income Statement

  3. 3. INDEX SR.NO. TOPICS PAGE NO. 1. Income statement 5 2. Items on income statement 6 3. Usefulness and limitations of income 7 statement 4. Balance sheet 8 3
  4. 4. PRESENTED BY:- Anita Dharak Nishit Pooja Hiren 4
  5. 5. INCOME STATEMENT An Income Statement, also called a Profit and Loss Statement (P&L), is a financial statement for companies that indicates how Revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. The important thing to remember about an income statement is that it represents a period of time. This contrasts the balance sheet, which represents a single moment in time. Charitable organizations that are required to publish financial statements do not produce an income statement. Instead, they produce a similar statement that reflects funding sources compared against program expenses, administrative costs, and other operating commitments. 5
  6. 6. Items on income statement Operating section • Revenue - Cash inflows or other enhancements of assets of an entity during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major operations. Usually presented as sales minus sales discounts, returns, and allowances. • Expenses - Cash outflows or other using-up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations. • General and administrative expenses (G & A) - represent expenses to manage the business (officer salaries, legal and professional fees, utilities, insurance, depreciation of office building and equipment, office rents, office supplies) • Selling expenses - represent expenses needed to sell products (e.g., sales salaries, commissions and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and equipment) • R & D expenses - represent expenses included in research and development • Depreciation - is the charge for a specific period (i.e. year, accounting period) with respect to fixed assets that have been capitalized on the balance sheet. 6
  7. 7. USEFULNESS AND LIMITATIONS OF INCOME STATEMENT Income statements should help investors and creditors determine the past performance of the enterprise, predict future performance, and assess the capability of generating future cash flows. However, information of an income statement has several limitations: • Items that might be relevant but cannot be reliably measured are not reported (e.g. brand recognition and loyalty). • Some numbers depend on accounting methods used (e.g. using FIFO or LIFO accounting to measure inventory level). • Some numbers depend on judgments and estimates (e.g. depreciation expense depends on estimated useful life and salvage value). 7
  8. 8. BALANCE SHEET:- In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. A company balance sheet has three parts: assets, liabilities and shareholders' equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth of the company; according to the accounting equation, net worth must equal assets minus liabilities. Another way to look at the same equation is that assets equal liabilities plus net worth. This is how a balance sheet is presented, with assets in one section and liabilities and net worth in the other section. The sum of these two sections must be equal; they must "balance". Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system. A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, real businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if they want to, immediately turn these into cash at the end of each period. Real businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities 8