Which statement best describes the primary purpose of the income statement?

• A. It shows the cash balance at year-end.
• B. It lists only assets and liabilities.
• C. It provides information on the market value of assets.
• D. It reports the economic profitability of an organization.

Answer: (D)

The income statement focuses on performance over a period by matching revenues with expenses to reveal net income or loss, which shows the organization’s economic profitability during that time. It summarizes what was earned and what was spent to determine how much profit was generated, rather than showing cash on hand or the value of assets. Cash balance at year-end is reported elsewhere (cash flow statements and balance sheet), listing of assets and liabilities is a balance sheet function, and market value of assets is not the primary purpose of the income statement. So the primary aim is to depict profitability over the period.