Question 1 - Intermediate Accounting (Kieso)

Question

What kinds of questions about future cash flows do investors and creditors attempt to answer with information in the income statement?

Step-by-Step Solution

Answer

An income statement facilitates the investors and creditors to predict future cash flows by comparing the current outcomes with previous reports. 

Income Statement

An income statement refers to a report prepared by the business entities to ascertain their profits or losses from operating and non-operating functions. 

Usefulness of the income statement

An income statement contains the description of revenues and expenses of one accounting period. It helps the investors and creditors to determine the business’s ability to produce cash in the future.

In addition, it facilitates the investors and creditors to determine the level of risks associated with the business by evaluating and comparing the current and past performance.