North Carolina Building Contractor License Practice Exam

The income statement is also known as _________.

1. Profit and loss statement

2. Balance sheet

3. Cash flow statement

4. Statement of changes in equity

The correct answer is: Profit and loss statement

The income statement is commonly referred to as a profit and loss statement. This is because it summarizes a company’s revenues and expenses over a specific period, ultimately calculating the net profit or loss for that period. The term "profit and loss" accurately reflects the primary purpose of the document: to show how much money the company earned (profits) and how much it spent (losses). The income statement provides key insights into a company's operational efficiency and profitability, making it an essential tool for assessing financial performance. By categorizing revenues and expenses, it allows stakeholders to analyze trends, understand financial health, and make informed business decisions. In contrast to other financial statements mentioned, the balance sheet provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time, while the cash flow statement tracks the flow of cash in and out of the business. The statement of changes in equity outlines the movement in equity over a given time period but does not specifically detail income and expenses like the income statement does. Thus, recognizing the income statement by its synonymous name of profit and loss statement is pivotal in accounting and finance contexts.