Income statements

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  • Income statements
    • Their use: Measures success compared to other years, assess performance between estimated and actual figures,
    • Profit and income statements: It attracts new businesses to market, encourages existing ones to grow and motivates.
    • Provides stakeholders knowledge on performance
    • Exceptional: large-one off transactions Extraordinary: large transactions outside of normal activity not expected to reoccur
    • Window dressing; Improves the look of balance sheet
      • Borrow short term money before it's drawn up making it look like company has ability to pay short-term debt.
      • Sale and leaseback: sell major non-current assets then leaseback.
      • Capitalising expenditure: purchasing non-current assets and including them as fixed assets on BS.
  • Interpreting Income statements
    • Shareholders: profit= guidance on performance.
    • Managers: shows performance in greater detail. .
    • Employees: look at profits after tax if pay is related to performance and will look at dividends if they're shareholders.
    • HMRC: check business meets standards, check taxes

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