Question

THE PERSONAL INCOME STATEMENT 1. What is the primary purpose of the income statement? 2. Distinguish between Total Income and Income Available for Living Expenditures. 3. Distinguish between variable and fixed expenditures

Answer 1

Ans 1.) The primary purpose of the income statement is to show how much profit or loss an organization generated during a reporting period.It is used to to report a companies financial statement during the accounting period and focuses on their revenue's and expenses.Various stakeholders are interested in knowing how well the company is functioning and which are the business activities that it has undertaken.

Ans 2.) Difference between total income and income available for living expenditure are:-

Total income is the sum of all the money received by an individual or organization, including income from employment or providing services, revenue from sales, payments from pension plans, income from dividends, or other sources. Income available for living expenditure is type of income which is used for necessities and basic living. This income is spent for maintaining good health. It includes categories like food,clothing, transportation etc.

Ans 3.) Difference between variable and fixed expenditure are:-

1. Variable expenditures are those expenses that changes directly or proportionately with the changes in the production volume. Fixed expenditures are those which remains constant for a period of time and does not change with production volumes or the level of outputs

2. Variable expenditure always changes with the change in output.They are related with volume or output. While fixed expenditures are incurred even if the output is nil. They are time related.

3. Example of variable expenditure is sales, credit card fees . Example of fixed expenditure is depreciation, interest paid on capital.