Business Degree Certification Practice Test

What financial report provides an overview of a company's revenues and expenses?

1. Balance sheet

2. Statement of cash flows

3. Income statement

4. Equity statement

The correct answer is: Income statement

The income statement is designed to provide a detailed overview of a company's revenues and expenses over a specific period. This report fundamentally represents the company's profitability by summarizing its income earned from sales and services (revenues) against the costs and expenses incurred in generating that income. The income statement typically includes key metrics such as gross profit, operating income, and net income. By presenting these figures, it helps stakeholders assess the company's operational efficiency, profitability trends over time, and overall financial performance. The income statement is often referred to in conjunction with the balance sheet and statement of cash flows, as it provides critical insights necessary for comprehensive financial analysis. In contrast, the balance sheet offers a snapshot of a company's assets, liabilities, and equity at a given point in time, while the statement of cash flows focuses on the inflows and outflows of cash, highlighting liquidity rather than profitability. The equity statement, on the other hand, outlines changes in owner equity during a reporting period but does not detail revenues and expenses. Thus, the income statement is the key financial report that specifically addresses the relationship between revenues and expenses.