CIFC practice question 17 of 30

Which among the following BEST describes a company’s income statement?

Full set: 224 questions

Answer options

A: It shows the amount of profit that is reinvested in the company in the form of retained earnings.

B: It shows the amount of capital contributed to the company by its shareholders or owners.

C: It shows the earnings and expenses of a business over a period of time. Correct answer

D: It provides a snapshot of a company's financial position at a specific point in time

Correct Answer:

C. It shows the earnings and expenses of a business over a period of time.

Explanation

The income statement (statement of earnings) summarizes a company’s revenues and expenses over a defined accounting period, revealing net profit or loss generated during that time.

Why Incorrect

A. Retained earnings appear on the statement of changes in equity, not the income statement.
B. Share capital is shown on the balance sheet’s equity section.
D. A snapshot at a point in time is provided by the balance sheet, not the income statement.

References

1. IFSE Institute, CIFC Textbook, 2023 ed., ch. 6 “Corporate Financial Statements”, p. 6-11–6-12 (description of income statement).

2. MIT OpenCourseWare, 15.514 “Financial & Managerial Accounting”, Lecture 5 notes, p. 2 (“Income statement reports revenues and expenses for a period”).

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