Blog entry by Orji Anyianuka
The Statement of Profit or Loss reports how a company has performed over a period of time, usually an accounting year. It lists the income items and deducts the costs items to show if the company has made a profit or loss.
The Income Statement Expresses the following equation: P (or L) = R – E
The Statement of Financial Position affects the Statement of Financial Position at the end of a financial year. The Owners Equity increases when a company makes a Profit or reduces if the company made or Loss.
A Proft situation is important because it shows that the company is well managed. It makes it easier for the company to pay back its obligations because profits improve the net cash flow position. A profit situation will also make lenders view them favourably for loans, and investors value the company shares higher.