Which accounting document shows a business’s revenues and expenses over a specific period of time?

• A. Statement of Cash Flows
• B. Balance Sheet
• C. Statement of Retained Earnings
• D. Income Statement

Answer: (D)

Verified step by step guidance

1. Understand the purpose of each accounting document: The Statement of Cash Flows shows cash inflows and outflows, the Balance Sheet provides a snapshot of assets, liabilities, and equity at a specific point in time, and the Statement of Retained Earnings tracks changes in retained earnings. The Income Statement, however, summarizes revenues and expenses over a specific period.
2. Recognize that the Income Statement is also referred to as the Profit and Loss Statement. It is used to calculate net income by subtracting total expenses from total revenues.
3. Identify the components of the Income Statement: Revenues (e.g., sales revenue, service revenue), Expenses (e.g., cost of goods sold, operating expenses), and Net Income (or Net Loss).
4. Understand the time frame: The Income Statement covers a specific period, such as a month, quarter, or year, unlike the Balance Sheet, which is a snapshot at a single point in time.
5. Conclude that the Income Statement is the correct document for showing a business’s revenues and expenses over a specific period of time, as it provides a detailed breakdown of financial performance during that period.