Users of the Income Statement
The income statement of a business has two kinds of users:
- Internal users: Internal users are owners and employees.
- External users: External users are individuals and other businesses that have a financial interest in the business reports.
Owner/Owners: Owners have invested resources in the business and are eager to know its performance. They are interested in acquiring the maximum economic value (return, or profit) for the amount invested.
Employee: Employees provide service to the business in exchange for payment. They have an interest in the economic performance of the business because:
- Their jobs are associated with it.
- When a business earns net income, it receives payment on time, and the salary or wages can increase.
- When businesses incur net loss (poor economic performance), payments cannot be made on time, and the chance for increase in wages or salary decreases.
Government: Business taxes are a major contributor to the revenue of a government. Therefore, the government has interest in the economic performance of businesses at the city, state, and local levels. Increased economic results (Net Income) encourage the government to collect more taxes, while poor economic results (those with a Net Loss) lessen collected taxes, and can become a potential financial burden.
Customer: Customers have a regular transaction with a business. They have interest in the success of the business for various reasons.
Example 1: If a computer business fails, then its products may not be available for the customers.
Example 2: If a customer purchases advance tickets with Southwest Airlines, they will be interested in the success of the company because the continued operation of the airline will be dependent on the tickets' validity.
Creditor: Creditors invest resources in a business by extending credit, such as loans or goods purchased on credit. Therefore, the business’ performance is important to them.