State BPA Fundamental Accounting Practice Exam

What financial statement summarizes the revenues and expenses of a business over a specific period?

1. Statement of Retained Earnings

2. Balance Sheet

3. Income Statement

4. Statement of Cash Flows

The correct answer is: Income Statement

The income statement is the financial statement that summarizes the revenues and expenses of a business over a specific period. This statement provides a clear picture of the company's financial performance, showing how much money the business earned (revenues) and how much it spent (expenses) during that timeframe. The result of these calculations is the net income or loss, which is a critical indicator of profitability. This statement is essential for stakeholders, including management, investors, and analysts, to evaluate the company's operational efficiency and profitability trends over time. It typically covers a period such as a quarter or a year, allowing for insights into how well the business is generating its income relative to its expenses during that moment. Other financial statements, such as the statement of retained earnings, balance sheet, and statement of cash flows, serve different purposes. For example, the statement of retained earnings focuses on the changes in equity from profits retained in the business. The balance sheet provides a snapshot of assets, liabilities, and equity at a specific point in time, while the statement of cash flows details the cash inflows and outflows over a period, which is related but distinct from revenue and expense reporting.