CSLB Contractor's Law & Business Practice Exam

Which financial statement summarizes revenues, cost of sales, and operating expenses over a specified period?

1. Profit plan

2. Balance sheet

3. Cash flow statement

4. Income statement

The correct answer is: Income statement

The income statement is the financial statement that summarizes revenues, cost of sales, and operating expenses over a specified period. This document provides a clear view of a company's financial performance, showing how much money the company earned during the period (revenues) and how much it spent to earn that money (cost of sales and operating expenses). The income statement culminates in a net income or loss, indicating whether the company was profitable for that period. This is essential for contractors and business owners to understand their operating efficiency, profitability, and overall financial health. The other options serve different functions: the profit plan is typically a projection of revenues and expenses rather than a summary of actual results, the balance sheet provides a snapshot of assets, liabilities, and equity at a specific point in time, and the cash flow statement summarizes the inflow and outflow of cash within the business, focusing on liquidity rather than profitability.