In financial accounting, the primary purpose of the income statement is to show the:

• A. Company’s revenues and expenses for a period, resulting in net income or net loss
• B. Company’s assets, liabilities, and shareholders’ equity at a specific date
• C. Cash receipts and cash payments for a period classified as operating, investing, and financing activities
• D. Changes in shareholders’ equity during a period, including owner investments and dividends

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the purpose of the income statement in financial accounting. The income statement summarizes a company's financial performance over a specific period of time.
2. Step 2: Identify the key components of the income statement, which are revenues and expenses. Revenues represent the inflows from business activities, while expenses represent the outflows or costs incurred.
3. Step 3: Recognize that the income statement calculates the net result of revenues minus expenses, which is either net income (profit) or net loss for the period.
4. Step 4: Differentiate the income statement from other financial statements: the balance sheet shows assets, liabilities, and equity at a point in time; the cash flow statement shows cash inflows and outflows; and the statement of changes in equity shows changes in shareholders’ equity.
5. Step 5: Conclude that the primary purpose of the income statement is to report the company’s revenues and expenses for a period, resulting in net income or net loss.