The Uses of the income statement

Question 1

What decision does the bank manager make with an income statement

Answer 1

The Bank Manager want to decide if the business can repay new or existing loans out of profit

Question 2

What decision does the 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 the Competitor make with an income statement

Answer 4

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

Question 5

What decision does the Potential Owners (not investors) make with an income statement

Answer 5

A potential owner is interested int he profit of the business to see if it is higher than what he would earn if he invested his money in the shear market or bank. 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 install ments off
• Can he take the family away on a holiday
• Should he try to boost sales or lower expenses to increase profit