Louisiana Contractors License Practice Exam

Which financial statement represents the revenues and expenses of a company over a specific time period?

1. Cash flow statement

2. Balance sheet

3. Income statement

4. Equity statement

The correct answer is: Income statement

The income statement is the financial statement that details the revenues and expenses of a company over a specific time period, typically a quarter or a year. It provides a clear overview of the company's profitability during that timeframe by subtracting total expenses from total revenues to arrive at net income or loss. This statement is crucial for stakeholders to assess how effectively the company generates profit relative to its expenses. In contrast, the cash flow statement focuses on the inflow and outflow of cash within the business, providing insight into liquidity rather than profitability. The balance sheet, on the other hand, presents a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time, thus not addressing revenues and expenses over a period. Finally, the equity statement shows changes in equity accounts over a period but does not provide detailed information about revenues or expenses. Each of these statements plays a different role in financial reporting, but the income statement is uniquely designed to reflect the profitability of a business over time.