1.Introduction We are working in a consulting company for a travel and tourism industry.

Our boss has provided us with the following income statement of the organization in order to analyze its financial performance. In this assignment we have to identify and critically discuss those aspects that the income statement covers/fails to address regarding this organization’s financial performance.

Income statement of ABC Travel and Tours for the Ending December 31, 2010 Revenue Package tours+ air ticket sales revenue Operating Expenses Advertising Wages Utilities Depreciations Refunds for failing services Insurances Interest Supplies 39000 53100 305000 10800 8000 42600 6000 1000 $ 65, 00,00

-------------------------------------------------------------------------------------------Total operating expenses: Operating income (before tax ) Income tax Net Income(after tax) 465500 $ 18,45,00 1,84,50 $ 16,60,50

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00 $ is the cash out flow from our business. 00 $ which shows cash inflow in our business and total expenses 46. On the other hand. It reflects the total revenue generated during a specific time period. The Income statement is used by management within the company. it is an important measure of the effectiveness and efficiency of management. A company's ability to operate profitably is important to current lenders and investors. and the total expenses that were incurred during that same period. Sangl (2009) argued that an income statement is a summary of two key categories of cash flows (inflow and out flow). 55. For example. The income statement shows our company revenue and expenses for the year 2010 and provides information about the results of operations for a started period of time. The income statement is important because it shows the profitability of a company during the time interval specified in its heading. pg. 2 . performance and aid in the assessment of risk for the investor or creditor. competitors. but also by investors and creditors outside the company to evaluate profitability. labor unions.Income statement The income statement is one of the major financial statements used by accountants and business owners. 1997) Since the income statement reveals the results of operations for certain period of time. total expenses. the net income is $ 166050 which considers that profit or net income of our company which is good for our partners and banks. According to the Income statement of our Travel Agency. The period of time that the income statements covers is chosen by the business and will vary depend on type of business and it usually cover for one year but do not exceed one business year. government agencies. if a company was not able to operate profitably—the bottom line of the income statement indicates a net loss—a banker/lender/creditor may be hesitant to extend additional credit to the company. and net income. company management.2. and others. a company that has operated profitably—the bottom line of the income statement indicates a net income—demonstrated its ability to use borrowed and invested funds in a successful manner. potential lenders and investors. The Income Statement is divided into three parts: total revenues. 00. For example. the revenue of our company is 65. (Cote. It provides management with important information regarding the business’s operations. According to Averkamp (2011) people pay attention to the profitability of a company for many reasons.

and the statement of stockholder’s equity. we need the basic set of financial statements includes a balance sheet at as specific date and the income statement for the accounting period ended on that date statement of cash flows. The second tool is the ability to compare the performance of the business over time. In this report we will explain why we can’t use only income statement as a tool to cover the financial health or performance of our travel agency and why he can’t provide a complete picture of our company’s financial performance. 3 . One tool is the ability to understand how the business has performed during the last period. We already mentioned about the income statement how is important for the business now we continue about the role of the Balance sheet. If we consider the financial statement of our company as a human body which include hands. pg. However to build or to analyze the financial performance of the our Travel Agency. Now I would like to give an example about the financial statement. According to the accounting policies we need more details to build the financial statements or financial performance which will let we know perfectly about the financial health of our travel agency. The final tool is to utilize an existing income statement as a planning tool to see how a major business decision would impact earnings. legs and head which perform to be perfect creature of body.Sangl (2009) explained that the preparation of income statements on a consistent basis allows a business leader to have three key tools. So body needs certain things to provide good looking of his creature.

property insurance. It is an intermediate income amount from which operating expenses and fixed charges are deducted to arrive at net income. Gross profit must be large enough to cover all these expenses for the business to earn a net income. Gross profit Gross profit is calculated by subtracting cost of sales from net revenue. • 2001) • Cost of sales This section reflects the cost of inventories purchased for resale that were sold. interest expense. property taxes. pg. • Net income (or loss) This section reveals the net income (or loss) of the operation for a started period. It indicates the overall success of operations for the period of time covered by the income statement. the major categories that appear on the income statement are the following: • Revenue Revenue results when product or services are sold to guests. Fixed charges are those expenses which are incurred regardless of whether the business is open or closed. and depreciation. • Operating expenses This section of the income statement lists expenses which are most directly influenced by operating policy and management efficiency. • Fixed charges This section includes rent. and they remain relatively constant even with charges in sales volume. The total revenue figure on the income statement indicates the actual amount that guests have been billed for products and services offered by the organization. 4 . It breaks out each of the significant operating expenses allowing management and others to readily identify expenses areas which may be excessive and which call further analysis and possible correction action.Covering aspects According to Cote (1997).. (Coltman et al.

Averkamp H(2011) Introduction to Income Statement. AMD JAGELS.accountingcoach.Failing aspects However.. Hospitality management accounting. Available at: http://www. REFERENCES COLTMAN. Therefore.M. East Lansing: Educational Institute of the American Hotel & Motel Association. Accessed on 9th March 2011..M. 1997. G.independentmail. The basic balance sheet and income statement cannot in themselves answer questions regarding cash inflows and cash outflows that have occurred during an operating period.com/news/2009/may/23/income-statements-provide-tools-better Accessed on 9th March 2011.com/online-accounting-course/04Xpg01. 7th ed. pg.html#income-statementintroduction . Sangl J(2009) Income statements provide tools for better decision-making. Available at: http://www. just the income statement is not enough for analysis of financial performance of the company. 4th ed. 5 . Understanding hospitality accounting I. New York: John Wiley & Sons. M. COTE R. 2001.

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