Contractor License Practice Exam

What type of financial statement summarizes revenues and expenses for a specific period?

1. Balance Sheet

2. Income Statement

3. Cash Flow Statement

4. Statement of Stockholders' Equity

The correct answer is: Income Statement

The income statement is the financial statement that summarizes revenues and expenses for a specific period, typically reflecting a company's performance over a month, quarter, or year. It provides vital insights into the profitability of a business by showing how much money was generated from sales versus how much was spent in generating that income. This statement format allows stakeholders to assess trends in revenue and costs over the designated time frame, enabling evaluations of operational efficiency and financial health. It highlights key metrics such as gross profit, operating income, and net income, offering a clear lens through which to view the company’s earning capabilities. In contrast, the balance sheet captures a company's financial position at a single point in time, focusing on its assets, liabilities, and equity rather than its performance over a period. The cash flow statement details the inflow and outflow of cash over a specified period, highlighting liquidity rather than profitability. The statement of stockholders' equity provides information about changes in ownership equity, detailing retained earnings, dividends, and other equity impacts but does not summarize revenues and expenses. Understanding these distinctions reinforces the correct identification of the income statement's purpose in financial reporting.