Which financial statement shows a company's revenues, expenses, and net income over a specific period of time?
Correct Answer
C) Income statement
The income statement (also called profit and loss statement) shows revenues, expenses, and net income for a specific period. The balance sheet shows financial position at a point in time.
Why This Is the Correct Answer
The income statement is specifically designed to show a company's financial performance over a period of time (monthly, quarterly, or annually). 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 operational profitability over time.
Why the Other Options Are Wrong
Option A: Balance sheet
The balance sheet shows a company's financial position at a specific point in time (like a snapshot), not over a period. It displays assets, liabilities, and equity as of a particular date, following the equation Assets = Liabilities + Equity.
Option B: Statement of cash flows
The statement of cash flows shows cash inflows and outflows over a period, but focuses specifically on cash movements rather than overall revenues, expenses, and net income. It tracks actual cash transactions, not accrued revenues and expenses.
Option D: Statement of retained earnings
The statement of retained earnings shows changes in a company's retained earnings over a period, but only focuses on this one equity account. It doesn't show the detailed breakdown of revenues and expenses that make up net income.
Memory Technique
Use 'INCOME = IN-COME over time' - income comes in over a period, not at a single moment. Think of it as a movie (over time) vs. a photograph (balance sheet at one point).
Reference Hint
Florida Construction Industry Licensing Board reference materials, Business and Finance section, or any basic accounting principles chapter covering financial statements
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