Which financial statement reflects the extent to which an organization's revenues exceed its expenses?

• A. Balance sheet
• B. Statement of cash flow
• C. Statement of retained earnings
• D. Income statement

Answer: (D)

Profitability over a period is shown by the income statement, which lists all revenues and all expenses for the period and then reveals the net income or net loss—the amount by which revenues exceed expenses. This is the direct measure of how well the organization converts earned revenue into earnings after costs. The balance sheet provides a snapshot of assets, liabilities, and equity at a specific point in time, not the period’s profitability. The statement of cash flows focuses on actual cash movements—cash receipts and payments from operating, investing, and financing activities—rather than the net result of revenues minus expenses. The statement of retained earnings shows changes in retained earnings due to net income and dividends and links to the income statement, but it does not display all revenues and expenses by itself.