What is the purpose of an income statement?

The purpose of an income statement is to summarize revenues, expenses, and profits or losses over a specific period, which is why this choice is the correct answer. The income statement provides a detailed account of how much money a company earned (revenues) and how much it spent (expenses) during a given timeframe, ultimately leading to the determination of the net profit or loss. This statement is crucial for stakeholders, such as investors and management, to assess the company's financial performance and operational efficiency within that period.

A focus on a specific timeframe distinguishes the income statement from other financial statements; it does not provide a snapshot of assets and liabilities at a specific date, which is the role of the balance sheet. Additionally, it does not describe equity financing directly or record cash flows from operating activities, tasks that are typically handled by the statement of changes in equity and the cash flow statement, respectively. Thus, the income statement serves a unique and pivotal function in financial reporting by illustrating the financial results of a company’s operations over time.