What is the purpose of an income statement?

The purpose of an income statement is to show a company's revenues and expenses over a specific period. This financial statement summarizes how much money the company earned (revenues) and how much it spent (expenses) during a defined timeframe, typically a quarter or a year. The result of this calculation indicates the company's profitability, revealing whether it made a profit or incurred a loss during that period.

By providing clear insights into both income and expenses, the income statement is essential for stakeholders, including management, investors, and creditors, to assess the financial performance of the company, make investment decisions, and evaluate operational efficiency. It serves as a critical tool for financial analysis, contrasting with the other options, which focus on different aspects of a company's financial health. For example, while one choice suggests a snapshot of a company's assets, another focuses on outstanding debts or equity changes, which are primarily addressed in the balance sheet and statement of changes in equity, respectively.