Question

After reviewing the three financial statements (balance sheet, income statement, and statement of cash flows), discuss which financial statement you find most useful. Explain why you have chosen this statement and provide specific examples of the information that the statement includes.

Answer 1

Every financial statements are important and useful for the users of accounting information and it's importance and usefulness depends upon the types of the users of accounting information.

Investors always wanted to know the profitability of the company thus for themselves income statement is the most powerful and useful financial statement to make their decision further.

Prospective investors wanted to know the financial status of the company including the capital structure , and to cater their needs balance sheet is the most prominent financial statement.

For bankers and creditors , Liquidity of the business is really vital . For them cash flow statement is the most prominent financial statement which specifies the abundance or shortage of cash and cash equivalents during a period of time under operating, investing and financing activities .

But as a whole Income statement is called the most important financial statement for almost every users , because it depicts (I) net profit earned or (II) net loss suffered by the business in a specific duration of time. Apart from that by income statement (III) net revenue earned and (IV) total expenses incurred with valid classifications can easily be identified . The concept of (V) gross profit or loss   (VI) operating profit or loss (VII) net profit or loss are the outcomes of the income statement.

As , we know profitability builds financial position sound, thus to take financial decisions, importance of income statement is really unavoidable . Most importantly without Income Statement , balance sheet and cash flow statement doesn't prepared accurately.