The Users of the Income Statement

Question 1

What decision does a bank manager make with an income statement?

Answer 1

The bank manager wants to decide if the business can repay new or existing loans out of profit.

Question 2

What decision does a employee make with an income statement?

Answer 2

The employee is interested in the Business’s profit to decide if it is high enough to ensure their job will continue or to decide if to ask for a pay rise

Question 3

What decision does the IRD make with an income statement?

Answer 3

The IRD is interested in making sure the business profit is accurate so they can decide if the correct amount of tax is calculated

Question 4

What decision does a competitor make with an income statement?

Answer 4

The Competitor is interested in the business profit to decide if it is higher or lower than theirs. They will want to compare income and expenses of the business to theirs to see if they can make improvements to their business performance. Eg lower their distribution costs by cutting delivery expenses.

Question 5

What decision does a potential owner make with an income statement?

Answer 5

A potential owner is interested in the profit of the business to see if it is higher that what he could earn if he invested his money in the bank or share market. If it is a sufficiently high profit he could decide to buy the business.

Question 6

What decision does the owner make with an income statement?

Answer 6

The owner is interested in the profit of the business to decide

• Whether the business is worth keeping or selling
• To expand the business by buying more assets
• Can he borrow more money and pay the loan instalments off
• Can he take the family away on a holiday
• Should he try and boost sales or lower expenses to increase profit.