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Application of Financial Statement - Term Paper Example

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Application of Financial Statement Name: Institution: How the Use of Income Statement May Be Applied to Your Everyday Life An income statement or a profit and loss statement gives a summary of the company’s profit and loss over a given period, either a month or a year…

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Application of Financial Statement

According to Smith (2009), every time people balance their checkbooks to their bank statement, an aspect of accounting is applied. Similarly, every time people balance what they have spent and gained in family’s needs or business, they apply the fundamentals of the income statement. In addition, when individuals consider what they have given as a credit to others and what they have received as credit, that is also an income statement. The basic application of income statement is simply the difference between revenue and expenses. In our personal lives, as we determine our gains and losses, there is no difference with using the income statement. Individuals need to track their income compared to their expenses in order to avoid overspending. In daily life, people need to know the much they earn compared to what they spend to ensure that we meet their daily needs. Home income statements can sometimes be used by creditors and banks to determine people’s credibility to handle more credit. An individual income statement is also important as it shows how solvent we are, as stated by Dopson and Hayes (2008). For instance, if one has more assets compared to debts, then that person is solvent meaning he/she has enough assets to cover for debts. ...
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