The income statement called the income statement reports the amount of net income earned by a company during a period. Almost every day the Wall Street Journal reports data on net income or earnings announced by companies the day before. Stock prices rise or fall depending on whether announced earnings meet investor expectations. For example, if there is an increase in the stock price of a specific company, the increase is compared to the previous year's net profit. This high level of interest centered on net income makes it clear that investors find this accounting number useful in evaluating a company's health and performance. (Albrecht, 2002) Net profit is reported in the income statement. The income statement shows the results of a company's business over a period of time. The income statement summarizes the revenues generated and the costs incurred to generate those revenues. The income statement tries to differentiate income and expenses, i.e. net income. Let us examine the various aspects of the income statement and their effect on the income statement. (Albrecht, 2002) Revenue Revenue: The amount of assets created through business operations, owner investments, and loans. Products sold or services rendered generate revenue. Businesses can also generate revenue through rent or charging interest. When goods are sold or services performed, revenue is generated as cash or receivables if there is a promise to pay on a certain date. Income in these cases increases the total assets. The new assets are not linked to any liabilities and therefore represent an increase in the equity of the property. (Albrecht, 2002) Expenses Expenses represent the amount of assets consumed through the business activity...... middle of document ...... Shares Shares $18,000.00 Retained Earnings $8,000.00 Total Assets $32,000.00 Total Liabilities + Equity $32,000.00 While the balance is useful, it has its limitations. The main limitation of the balance sheet is that it does not reflect the current value or value of a company. Essentially the importance of the balance is that it provides the financial position of a company as of a particular date. Helps external users evaluate the financial relationship between assets, liabilities and owner's equity. Assets and liabilities are generally classified as current or long-term and presented in decreasing order of liquidity. (W. Steve Albrecht, 2002) ReferencesAlbrecht, Steve W. et al Accounting Concepts & Application (8th edition ed.). Cincinnati, Ohio: Southwestern. (2002).