State BPA Fundamental Accounting Practice Exam

Which financial statement records a company’s revenues and expenses over a period?

1. Income Statement

2. Balance Sheet

3. Cash Flow Statement

4. Statement of Changes in Equity

The correct answer is: Income Statement

The income statement, also known as the profit and loss statement, is specifically designed to record a company’s revenues and expenses over a defined period, such as a quarter or a year. This financial statement provides insight into a company's operational performance, showing how much money was generated from sales (revenues) and what costs were incurred (expenses) during that time frame. The difference between revenues and expenses on the income statement results in net income or net loss, indicating whether the company was profitable over that period. In contrast, the balance sheet offers a snapshot of a company's financial position at a specific point in time, detailing assets, liabilities, and equity rather than focusing on operational results over a period. The cash flow statement tracks the inflow and outflow of cash, showing how cash is generated and used, but does not summarize revenues and expenses directly. Meanwhile, the statement of changes in equity focuses on changes in equity accounts over a period, such as retained earnings and contributed capital, rather than detailing revenues and expenses. Thus, the income statement is the correct financial statement that directly addresses the question regarding revenues and expenses over a defined period.