Which of the following is a difference between balance sheets and income statements?

• A. A balance sheet is prepared monthly, while an income statement is prepared only annually.
• B. A balance sheet reports a company's financial position at a specific point in time, while an income statement reports financial performance over a period of time.
• C. A balance sheet only includes revenues and expenses, while an income statement includes assets and liabilities.
• D. A balance sheet shows cash flows, while an income statement shows retained earnings.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the purpose of a balance sheet. A balance sheet provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and equity, showing what the company owns and owes.
2. Step 2: Understand the purpose of an income statement. An income statement reports a company's financial performance over a period of time, typically including revenues, expenses, and net income or loss.
3. Step 3: Compare the time frame of the two statements. A balance sheet reflects a single point in time, while an income statement covers a range of time, such as a month, quarter, or year.
4. Step 4: Clarify the components of each statement. A balance sheet includes assets, liabilities, and equity, whereas an income statement focuses on revenues, expenses, and profitability.
5. Step 5: Eliminate incorrect options based on the definitions and purposes of the balance sheet and income statement. For example, a balance sheet does not show cash flows (this is the role of the cash flow statement), and an income statement does not include assets and liabilities (these are part of the balance sheet).