Utah Contractor Practice Exam

What type of financial statement summarizes a company's revenues and expenses?

1. Balance Sheet

2. Cash Flow Statement

3. Income Statement

4. Owner's Equity Statement

The correct answer is: Income Statement

The financial statement that summarizes a company's revenues and expenses is the Income Statement. This document provides a clear overview of how much money the company earned (revenues) and how much it spent (expenses) over a specific period, typically a month, quarter, or year. The result of this summary is the company's net income or profit, which is a crucial indicator of its financial performance and operational efficiency. The format of an Income Statement typically includes total revenue, cost of goods sold (if applicable), gross profit, operating expenses, interest, taxes, and ultimately net income. This allows stakeholders, such as investors and management, to assess how well the company is generating profit relative to its revenue and how effectively it controls costs. In contrast, the Balance Sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, highlighting financial health rather than performance over time. The Cash Flow Statement details the inflows and outflows of cash within the business, focusing on cash movements rather than profitability. Lastly, the Owner's Equity Statement outlines changes in owner's equity throughout the accounting period, illustrating contributions from or distributions to owners but not detailing revenues and expenses directly.