CPIM Practice Exam

What type of financial statement shows the net income for a business during a specific period?

1. Balance Sheet

2. Cash Flow Statement

3. Income Statement

4. Statement of Retained Earnings

The correct answer is: Income Statement

The income statement is designed to present the net income of a business over a specific period, typically a fiscal quarter or year. This financial statement details revenues, expenses, and ultimately the profit or loss for that timeframe, making it crucial for assessing a company's financial performance. By summarizing sales and costs associated with producing goods or services, the income statement enables stakeholders to gauge profitability and operational efficiency. In contrast, the balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, thus not reflecting performance over a period. The cash flow statement focuses on the inflows and outflows of cash, indicating how cash is generated and used, rather than net income. Lastly, the statement of retained earnings outlines changes in equity from profits retained in the business after dividends are paid but does not summarize income or expenses directly. Therefore, the income statement is distinctly positioned to convey the net income for a given period.