What does an income statement show?

What does an income statement show?

• A. Assets, Liabilities, and Owner's Equity at a point in time.
• B. Revenue minus expenses over a period, resulting in net income or loss.
• C. Cash inflows and outflows over a period.
• D. Change in equity from transactions with owners.

Answer: (B)

The main idea being tested is profitability over a period. An income statement shows how much revenue the business earned during a set span (like a month, quarter, or year) and the expenses it incurred, with the difference representing net income or net loss. This focuses on operating performance and profitability, not on the financial position at a single date or on cash movements. It doesn’t present assets, liabilities, and owner’s equity at a moment in time (that’s the balance sheet), nor does it track actual cash inflows and outflows (that’s the cash flow statement). It also isn’t about changes in equity from owner transactions (that’s a different statement). So the correct description is revenue minus expenses over a period, yielding net income or loss.

The main idea being tested is profitability over a period. An income statement shows how much revenue the business earned during a set span (like a month, quarter, or year) and the expenses it incurred, with the difference representing net income or net loss. This focuses on operating performance and profitability, not on the financial position at a single date or on cash movements. It doesn’t present assets, liabilities, and owner’s equity at a moment in time (that’s the balance sheet), nor does it track actual cash inflows and outflows (that’s the cash flow statement). It also isn’t about changes in equity from owner transactions (that’s a different statement). So the correct description is revenue minus expenses over a period, yielding net income or loss.