Business Degree Certification Practice Test

Which financial statement reflects a company’s performance over a specific period?

1. Balance sheet

2. Income statement

3. Cash flow statement

4. Statement of retained earnings

The correct answer is: Income statement

The income statement reflects a company’s performance over a specific period by showcasing revenues and expenses. It measures how much profit or loss a company made during that timeframe. This statement typically covers a defined duration, such as a quarter or a year, providing insights into operational efficiency and profitability. The balance sheet, in contrast, presents a snapshot of a company's financial position at a single point in time, detailing assets, liabilities, and equity. The cash flow statement tracks the inflow and outflow of cash, emphasizing liquidity rather than overall performance. Meanwhile, the statement of retained earnings shows changes in equity during a period, specifically how earnings have been reinvested or distributed, but does not directly measure overall performance like the income statement does.