Which financial statement shows a company's revenues, expenses, and net income for a specific period?
Correct Answer
C) Income statement
The income statement (also called profit and loss statement) shows revenues, expenses, and net income over a specific time period. The balance sheet shows financial position at a point in time, while cash flow statements show cash movements.
Why This Is the Correct Answer
The income statement is specifically designed to show a company's financial performance over a defined period of time, typically a month, quarter, or year. It displays all revenues earned and expenses incurred during that period, with the bottom line showing net income (profit) or net loss. This statement follows the basic equation: Revenues - Expenses = Net Income, making it the primary tool for evaluating profitability and operational efficiency during a specific timeframe.
Why the Other Options Are Wrong
Option A: Statement of retained earnings
The balance sheet shows a company's financial position at a single point in time (like a snapshot), displaying assets, liabilities, and equity. It does not show revenues, expenses, or net income over a period.
Option B: Statement of cash flows
The statement of retained earnings shows changes in the company's retained earnings account over a period, including beginning balance, net income, dividends paid, and ending balance. It doesn't show the detailed revenues and expenses that make up net income.
Memory Technique
Use the acronym 'REN' for the income statement: Revenues, Expenses, Net income - these three components define what an income statement contains and calculates over a time period.
Reference Hint
Florida General Contractor Reference Manual - Business and Finance section, Chapter on Financial Statements and Accounting Principles
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