What is the statement of profit or loss?

The statement of profit or loss, often referred to as the income statement, is designed to show a company’s performance over a specific period by detailing its revenues and expenses. This financial statement provides valuable insights into how much money a company earned (its revenues) and what it spent (its expenses). The difference between revenues and expenses results in profit or loss, which is a key indicator of a company's financial health during that period.

By capturing all relevant income generated from business activities and the costs associated with those activities, this statement plays a crucial role in assessing profitability and operational efficiency. It is fundamentally important for stakeholders, including investors and management, to evaluate how effectively the company is managing its resources and generating returns.

The other options represent different types of financial reports that focus on other aspects of a company's financial situation. For instance, a report on cash flows would detail the cash movement and liquidity rather than profitability, while a balance sheet outlines assets and liabilities, illustrating the company's financial position at a specific point in time, rather than over a period. Lastly, a report that only outlines expenses does not provide a complete view of financial performance since it omits revenues, which are vital for understanding the overall profit or loss.