Users of an 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 the 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 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 see if it is higher or lower than theirs. They would want to compare income and expenses of the business to theirs to decide if they can make improvements to their business performance. E.g 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 the profit of the business to see if it is higher than 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 an owner make with an income statement

Answer 6

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