Question

What Are the Three Limitations of the Income Statement?

Answer 1

The limitations of income statement are as follows:

1. Income is reported based on the accounting rules and does not represent the actual cash changing hands.
2. There will be variation in the way inventory is calculated (either FIFO or LIFO) and therefore income statements cannot be compared.
3. The statements can be limited by intentional misrepresentation
4. Certain revenue, expenses, gains or losses are not reported reliably and are therefore not added in the income statement.

Also read:

• Financial Statements of a Company
• Income Statement Everything You Need to Know
• Analysis of Financial Statements
• Financial Statements MCQs
• Uses and Importance of Financial Statements

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