For internal users, income statement helps to check the performance and profitability of the business. Owners invest their money merely to earn profits and thus it is necessary for them to check the amount of money they have earned in an accounting period. Similarly, manager’s status is directly linked with the profitability of the business. If the organization has able to achieve higher profits, manager’s salary and status often increases. Moreover, income statements also help to check the revenues and expenses of the business and thus managers can decrease their unnecessary expenses to earn more profits. In the same way, making of income statements is also useful for the external users such as investors, creditors and the government. Investors usually check the income statements of the organization to check the past financial performance of the business and to assess the capability of generating future cash flows. Moreover, creditors also take the help of the income statement to check whether the business has enough revenue to pay its dues on time. Finally, the government needs to check in order to calculate the taxes which the firm has to pay with respect to the profits earned over time.
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