Which of the following is the best description of what is shown on a company's income statement?

• A. The company's sources and uses of cash during a particular period of time
• B. How much profit (or loss) the company earned over a particular period of time
• C. The company's financial position at a specific point in time
• D. The changes in the total owners' equity amount listed on the balance sheet

Answer: (B)

An income statement focuses on profitability over a period. It lists revenues and gains, then subtracts expenses and losses to arrive at net income for that period. This net figure is the bottom line and shows how effectively the company generated profit during that time. It differs from a cash flow statement, which tracks actual cash movements, and from a balance sheet, which shows assets, liabilities, and owners’ equity at a single point in time, as well as from a statement of changes in equity, which shows how owners’ equity changed over the period. So the best description is that the income statement shows how much profit or loss the company earned over a particular period.