Which term is defined by Revenues - Expenses = Net Income?

Which term is defined by Revenues - Expenses = Net Income?

• A. Income Statement
• B. Balance Sheet
• C. Cash Flow Statement
• D. Statement of Changes in Equity

Answer: (A)

Profitability over a period is captured on the income statement, which records revenues and expenses for a specific period and shows net income as the bottom line. This formula—revenues minus expenses—directly defines net income, so the document that presents this computation is the income statement. It focuses on performance over time, unlike the balance sheet (which shows assets, liabilities, and equity at a point in time), the cash flow statement (which tracks cash movements), or the statement of changes in equity (which shows changes in ownership interests). Net income from the income statement also flows into retained earnings on the balance sheet, linking the statements.

Profitability over a period is captured on the income statement, which records revenues and expenses for a specific period and shows net income as the bottom line. This formula—revenues minus expenses—directly defines net income, so the document that presents this computation is the income statement. It focuses on performance over time, unlike the balance sheet (which shows assets, liabilities, and equity at a point in time), the cash flow statement (which tracks cash movements), or the statement of changes in equity (which shows changes in ownership interests). Net income from the income statement also flows into retained earnings on the balance sheet, linking the statements.