The major advantage of the income statement is that it shows the profitability of the company over a period of time. The company can determine the major revenues it earned through this income. Secondly, an income statement is also significant because it is based on the matching principal and it shows the expense incurred by a company to earn the revenues. Shareholders of a company are also interested in the net income because the dividends are paid out of the total income. Moreover, income statement also helps the companies to analyze their expenses and to take into account the major streams of operating revenues of the company. On the other hand, the major disadvantage of an income statement is that it is considered as a fiction because it is based on accrual accounting and it does not give the cash transactions. Cash is king and free cash cannot be calculated through income statement.
