Shortcomings of Income Statements
#8 Shortcomings of Income Statements (Student Post)
Income statements are useful for companies wishing to evaluate their past performance or predict future financial standings, but they do have several disadvantages. For one, companies can choose to leave out information that is not easily or reliably measured. This can encourage inaccurate reporting . Secondly, different methods of accounting (like with depreciation) can be used which can make one companies income appear lower than the others. Lastly, companies can vary how they estimate certain things so as to make expenses appear to be lower and “increase’ their income.
Source:
Kieso, D.E., Wygandt, J.J., & Warfield, T.D. (2016). Intermediate Accounting (16th ed.). Retrieved from https://phoenix.
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