Читать книгу Financial Accounting For Dummies - Maire Loughran - Страница 46

The income statement shows financial results for the period it represents. It lets the user know how the business is doing in the short-term. And you have to keep in mind that the company’s performance is not just a question of whether it made or lost money during the financial period. The issue at hand is more a matter of the relationship among the different accounts on the income statement.

For example, maybe you see that a company’s gross profit, which is the difference between sales and cost of goods sold, is $500,000. (Not sure what cost of goods sold is? No worries — you can find out in the next section of this chapter!) Based on the amount of gross sales or historical trends, you expect gross profit to be $700,000. Well, your scorecard is coming in $200,000 short — not good. And if you’re a member of company management or an owner, you need to find out why.

Historical trends, which I discuss in Chapter 14, refer to a company’s performance measured in many different ways tracked over a period of time — usually in years rather than in months.

Perhaps you’re saying, “But wait — what about the equity section of the balance sheet? Doesn’t that provide a scorecard too?” Well, think back to the definition of retained earnings I give earlier in this chapter: Retained earnings is the accumulated total of net income or loss from the first day the company is in business all the way to the date on the balance sheet (less dividends and other items that I discuss in Chapter 9). Retained earnings does provide valuable information, but because it’s an accumulation of income that you can’t definitely tie to any specific financial period, and because it can potentially be reduced by other accounting transactions such as dividends, it does not provide a scorecard like the income statement does.