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

• A. Report a company’s revenues and expenses for a period to determine net income or net loss
• B. Show changes in each component of stockholders’ equity during a period
• C. Explain changes in cash during a period by reporting operating, investing, and financing cash flows
• D. Report a company’s assets, liabilities, and stockholders’ equity at a specific date

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, typically a month, quarter, or year.
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 to generate those revenues.
3. Step 3: Recognize that the income statement calculates net income or net loss by subtracting total expenses from total revenues. This net figure indicates whether the company made a profit or incurred a loss during the period.
4. Step 4: Differentiate the income statement from other financial statements: the statement of stockholders' equity shows changes in equity accounts, the statement of cash flows explains cash inflows and outflows, and the balance sheet reports assets, liabilities, and equity at a point in time.
5. Step 5: Conclude that the primary purpose of the income statement is to report a company’s revenues and expenses for a period to determine net income or net loss.