Finance Case

Question1: Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.

Answer:

For the sake of this assignment, I will choose the income statement.

First of all, an income statement measures a company’s revenue and expenses as it relates to net income or net loss. The income statement relates more to my everyday life than the balance sheet , I chose the income statement. For example;

I have to make sure that I meet my daily or monthly bill payments; I need to make sure that my expenses are equal or less than my income. The reason for this is to avoid spending more money than I make. If I spend more money than I make, this results into unpaid bills or insufficient fund fees from my bank. Just in the same way a company will report net loss for the period, my creditors will report a negative credit rating on my credit report for past due payment. Therefore, I have to monitor and budget expenses according to my monthly income. In order to maintain a positive statement, I have to make more money or spend less money. Applying an income statement to my everyday life would definitely have a positive outcome on my finances and quality of life general.

Question 2: Using the same concept selected above, discuss how a business manager may benefit from an understanding of this statement.

Answer: Income statement reports the success or profitability of a company’s operations over a specific period of time. The income statement lists revenues first, followed by expenses; finally the statement shows net income (or net loss). It does not include investment and dividend transactions between the stockholders and the business in measuring net income. A business manager can benefit from an understanding of the income statement by analyzing the statement in how the company is doing. These three questions should be answered for the manager if the company is on the right track.

1. Where all revenue and expenses captured on the statement?

2. Is there more money coming in than going out?

3. Is net income in the range of projected amount?

Any answer short of yes, means that business strategy needs to be reexamined.

Question 3: Discuss how your