a. What is the purpose of the Income Statement? b. What is another name for the

Question

a. What is the purpose of the Income Statement? b. What is another name for the Balance Sheet? c. What types of activities would increase the balance of Owner’s Equity? d. How do dividends or withdrawals impact Owner’s Equity balances? e. Which statement is compared to a snapshot and which is described as a video? Why are these comparisons a useful analogy for describing these statements? f. Which financial statement summarizes the reasons for the net changes in cash balances for a period? g. What are the three types or classifications of cash flows that appear on the Statement of Cash Flows? h. Which of the key financial statements describe activities over a period of time and which describe the status of the business at a specific point in time?

Explanation / Answer

a. The purpose of the income statement is to summarise the operating results of an enterprise in an accounting period by disclosing revenues earned and the expenses incurred. The net profit or loss disclosed therein indicates the operating success or otherwise.

b. The position statement.

c. Issue of stock, increase in retained earnings.

d. Dividends would decrease the owners' equity.

e. The balance sheet is the snapshot, whereas the income statement is a video.

The balance sheet gives the summarized financial status of a company in terms of assets, liabilities and equity as on a given date. The income statement on the other hand relates the story as it happened in terms of revenues and expenses during the accounting period in question, plus there is also a happy end to the story if there is a profit or a not so happy one in case there is loss.

f. The statement of cash flows.

g. Cash flows from operating activities, cash flows from investing activities and cash flows from financing activities.

h. The Income Statement. The balance sheet.

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