What does an income statement show about a company over a period of time?

• A. The changes in the company's equity due to owner investments and distributions
• B. The company's cash inflows and outflows from operating, investing, and financing activities
• C. The company's assets, liabilities, and equity at a specific point in time
• D. The company's revenues and expenses, resulting in net income or loss

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the purpose of an income statement. An income statement is a financial report that shows a company's financial performance over a specific period of time, typically a month, quarter, or year.
2. Step 2: Identify the key components of an income statement. These include revenues (income earned from business operations) and expenses (costs incurred to generate revenue).
3. Step 3: Recognize the result of the income statement. By subtracting total expenses from total revenues, the income statement calculates the company's net income (profit) or net loss (if expenses exceed revenues).
4. Step 4: Differentiate the income statement from other financial statements. Unlike the balance sheet, which shows assets, liabilities, and equity at a specific point in time, or the cash flow statement, which tracks cash inflows and outflows, the income statement focuses on operational performance over a period.
5. Step 5: Apply this understanding to the question. The correct answer is that the income statement shows the company's revenues and expenses, resulting in net income or loss over a period of time.