What does an income statement (profit and loss) show?

• A. A financial statement showing revenue and expenses over a period, resulting in net profit or loss.
• B. A balance of all assets.
• C. A breakdown of cash movements.
• D. A note on capital structure.

Answer: (A)

An income statement focuses on how a business performs financially over a period by showing what it earns and what it spends, ending with the net profit or net loss for that period. It starts with revenue from selling goods or services and then subtracts the costs and expenses incurred to generate that revenue, including items like cost of sales, operating expenses, interest, and taxes. The final figure—the bottom line—shows whether the business made a profit or a loss during the period.

This is different from a balance sheet, which shows what the business owns and owes at a point in time (assets, liabilities, and equity). It’s also different from a cash flow statement, which tracks the actual cash moving in and out during the period. The income statement focuses specifically on performance (revenues and expenses) rather than position or cash movements. For example, if revenue is 100 and total expenses are 70, the net profit is 30.