Which financial statement shows revenues and expenses to determine net income?

Which financial statement shows revenues and expenses to determine net income?

• A. Balance Sheet
• B. Statement of Cash Flows
• C. Income Statement
• D. Statement of Changes in Equity

Answer: (C)

The main idea is how a company’s performance is shown over a period by listing revenues and expenses to calculate net income. The income statement does just that: it aggregates all revenues and all expenses for the period (for example, a month, quarter, or year) and subtracts expenses from revenues to arrive at net income. That single figure represents the profit or loss for the period. Other statements have different purposes: the balance sheet captures what the company owns and owes at a specific moment in time; the statement of cash flows tracks actual cash receipts and payments during the period; and the statement of changes in equity shows how the owners’ equity changes, including how net income affects retained earnings. So, to determine net income from revenues and expenses, you’d look at the income statement.

The main idea is how a company’s performance is shown over a period by listing revenues and expenses to calculate net income. The income statement does just that: it aggregates all revenues and all expenses for the period (for example, a month, quarter, or year) and subtracts expenses from revenues to arrive at net income. That single figure represents the profit or loss for the period. Other statements have different purposes: the balance sheet captures what the company owns and owes at a specific moment in time; the statement of cash flows tracks actual cash receipts and payments during the period; and the statement of changes in equity shows how the owners’ equity changes, including how net income affects retained earnings. So, to determine net income from revenues and expenses, you’d look at the income statement.