What is an income statement?
A statement that compares revenues to expenses and presents the net income (or loss) from a period of time.
A list of all sources of income.
A statement that compares assets to liabilities.
A statement of sales over time compared to COGS at any point of time.
The correct answer is: A statement that compares revenues to expenses and presents the net income (or loss) from a period of time.
An income statement, also known as a profit and loss statement or P&L statement, is a financial statement that presents the revenues, expenses, and resulting net income or loss for a specific period of time, usually a fiscal quarter or year. It provides information about a company's ability to generate revenue, manage expenses, and ultimately, its profitability.
The income statement compares the company's total revenues with its total expenses to determine the net income (or loss). Revenues, also known as sales or income, are the amounts earned from the primary operations of the business, such as sales of goods or services. Expenses are the costs incurred in generating revenue, including salaries, rent, utilities, and other operating expenses.
The statement calculates the net income by subtracting total expenses from total revenues. If the result is positive, it represents a net income, indicating that the company made a profit during the specified period. Conversely, if the result is negative, it represents a net loss, indicating that the company incurred more expenses than the revenue it generated.
Overall, the income statement provides valuable insights into a company's financial performance and is commonly used by investors, creditors, and other stakeholders to evaluate a company's profitability and financial health.