Income statement or the statement of profit and loss is one of the financial statements that have been prepared by companies at the end of its financial period considering all the accounting principles and ethics. The key information highlighted in the income statement comprised of revenues, expenses and profits or loss. This key information is very essential for all the stakeholders because such information communicates the financial performance of a company in the market place (Palepu and Healy, 2007). According to Katz and Green (2007) income statement provides information to its users regarding the cash that is in flowed within a company in terms of revenues. It also shed a light on the profits generated from the operation of a company. Moreover, key information provided by the income statement also includes cost of goods manufactured which is a sort of cost incurred to manufacture output of company. As per Brigham and Ehrhardt (2013), sometimes investors are interested to gain knowledge regarding the profits of a company from its discontinued operations and such type of key information has only been included in the income statement, Apart from this, income statement also briefly discussed a variety of expenses incurred by companies during their business operations.
Balance sheet is another type of financial statement that articulates the financial position of a company to the stakeholders. It contains three main information of a company namely assets, liabilities and shareholder’s equity. Balance sheet is the most important financial statement of a company because it highlights the extent of debt financing and equity financing done by companies in order to finance their assets.