The income statement called income statement shows the amount of net profit earned by a company during a period. Almost every day, the Wall Street Journal publishes reports on the bottom line or profits announced by companies the day before. Stock prices rise or fall depending on whether announced earnings meet investors' expectations. For example, if there has been an increase in the stock price of a specific company, the increase is compared to the previous year's net profit. This high level of interest focused on the bottom line clearly shows that investors find this accounting number useful in assessing the health and performance of a company. (Albrecht, 2002) Net income is presented in the income statement. The income statement shows a company's operating results over a specific period of time. The income statement summarizes the revenue generated and the costs incurred to generate that revenue. Income statements seek to differentiate between revenues and expenses, which constitutes net income. Let's look at the different aspects of the income statement and their effect on the income statement. (Albrecht, 2002)IncomeIncome the amount of assets created through business operations, owner investment, and borrowing. Products sold or services rendered generate income. Businesses can also generate income through rent or interest. When goods are sold or services rendered, revenue is generated in the form of cash or accounts receivable if there is a promise of payment by a certain date. In these cases, income increases total assets. The new assets are not linked to any liabilities and therefore represent an increase in the owner's equity. (Albrecht, 2002) Expenses Expenses are the amount of assets consumed in business operations...... middle of paper...... Stocks $18,000.00 Retained earnings $8,000.00 Assets total $32,000.00 Total liabilities + equity $32,000.00 Although the balance is useful, it has its limitations. The main limitation of the balance sheet is that it does not reflect the current value of a company. Essentially, the importance of the balance sheet lies in the fact that it provides the financial position of a company as of a given date. It helps external users evaluate the financial relationship between assets, liabilities and owner's equity. Assets and liabilities are generally classified as current or long-term and presented in descending order of liquidity. (W. Steve Albrecht, 2002)ReferencesAlbrecht, Steve W. et al Accounting Concepts & Application (8th edition ed.). Cincinnati, Ohio: Southwest. (2002).