Income Statement: Importance, Analysis, and Components

The Importance of the Income Statement

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Question

The Income Statement:

I. reflects the current operating performance of the firm.

II. indicates whether the firm is healthy and growing or not.

III. explains the changes in assets, liabilities and equity of the firm.

IV. is a snapshot of a firm's operations at a given time.

Answers

Explanations

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A. B. C. D.

D

To assess the health and growth of a firm, one needs the cashflow statement in addition to the income statement to evaluate the liquidity and solvency of the firm.

III is not true since the Income statement does not contain all the details which pertain to changes in assets and liabilities. Finally, (IV) is true of a balance sheet; an income statement displays some aspects of a firm's operations over a selected period.

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