University of the people

Written Assignment Unit 3

Bus 1102: Principles of accounting

Armen Shahinyan (Instructor)

7th September, 2022

The purpose of an income statement for a retail business

The income statement is essential for a retail business. A company's "financial success over

time" is shown on an income statement (Franklin et al., 2020, p. 66). The income statement of a

retail company will demonstrate to stakeholders how well the business is doing financially. The

income statement also discloses the company's revenue and expenses, which informs business

stakeholders about the company's profitability. Stakeholders such as owners, investors, and

lenders require the income statement. Later, I will explain why the income statement is crucial to

these parties. The income statement also helps management determine how well the firm can

turn expenses into revenues (FreshBooks, n.d.).

The income statement format I choose, and why I choose this format

As the accountant for a small retail company, I like using a combination of multi-step and simple

income statement styles. My preference for this combo is based on two factors. The multi-step

income statement may be more beneficial for "internal usage and executive decision-making"

due to the depth of the account information to start (Franklin et al., 2020, p.407). The simple

income statement may be more suited for "external objectives, such as a summary for investors

and lenders," according to the second point (Franklin et al., 2020, p. 407). In addition, the multi-

step income statement will help with decision-making, while the primary income statement will

help investors and lenders. I believe that combining the two kinds will be advantageous to the

retail industry, but it will also present some challenges.

The benefits and challenges of my statement choice for each stakeholder group
My decision to combine both techniques will result in several advantages for each stakeholder

group. On the other hand, this combination will only cause a few minor problems for the modest

retail business where I work as an accountant.

Following are the benefits for each stakeholder group:

Owners

Small retail company owners may make better judgments by integrating both forms of income

statements. Because there is so much account information, the multiple-step income statement

method is "valuable for internal use and management decision-making" (Franklin et al., 2020, p.

407). On the other side, the owners will benefit from using the fundamental income statement

structure to attract new investors.

Speculators & Investors

I combined lenders and investors since they both benefit from the same things. If the retail

business provides both versions, lenders and investors will be more likely to understand the

company's financial situation thoroughly. Considering that both stakeholders will be providing

money to the organization, keep in mind how vital the organization's financial health is to them.

Banks and other lenders ask for a certain amount of information, which may be provided in a

multi-step or straightforward income statement format. Because not all investors know intricate

accounting details, the straightforward income statement format will make it simpler for

investors to comprehend the company's financial situation. Thus, integrating the two forms of

income statements will provide lenders and investors access to diverse data that will help them

comprehend the success of the company.

The challenges are as follows.

Owners

The owners will face the challenge of the lengthy procedure of combining two different forms of

income statements. Making a multi-step and introductory income statement takes much time,

which might postpone getting the data when required.

Speculators & Investors

Due to the availability of both types of income statements, lenders and investors will have few

difficulties. Contrarily, having two income statement types might confuse.

Word Count: 582

References:

Franklin, M. Graybeal, P. & Cooper, D. (2020). Principles of accounting, volume 1: Financial

accounting. Open Stax Rice University. https://openstax.org/details/books/principles-financial-

accounting

FreshBooks (n.d.). What Is An Income Statement? Financial Reports For Small Businesses.

(2019, March). FreshBooks. https://www.freshbooks.com/hub/accounting/what-is-an-income-

statement