True or False: An income statement shows profit earned, while the balance sheet highlights assets and liabilities.

True or False: An income statement shows profit earned, while the balance sheet highlights assets and liabilities.

• A. True
• B. False
• C. This is context-dependent
• D. Only true for non-profits

Answer: (B)

The statement is true, as it accurately describes the functions of an income statement and a balance sheet. An income statement indeed reflects the profit earned over a specific period, detailing revenues and expenses to show the bottom line, which is either a profit or a loss. Conversely, the balance sheet provides a snapshot of a company's financial situation at a specific point in time, outlining its assets, liabilities, and shareholders' equity. Understanding the roles of these financial statements is fundamental in finance and accounting. The income statement is focused on operational performance, while the balance sheet provides insight into overall financial health. This distinction is crucial for stakeholders, including managers, investors, and creditors, as it helps them make informed decisions regarding the company's financial status and operational efficiency. The other options reflect misunderstandings of the financial statements’ core purposes, with some suggesting context is needed or limiting the truth of the statement to specific types of organizations. In reality, both profit-oriented and non-profit entities utilize these statements in similar ways to gauge financial performance and position.

The statement is true, as it accurately describes the functions of an income statement and a balance sheet. An income statement indeed reflects the profit earned over a specific period, detailing revenues and expenses to show the bottom line, which is either a profit or a loss. Conversely, the balance sheet provides a snapshot of a company's financial situation at a specific point in time, outlining its assets, liabilities, and shareholders' equity.

Understanding the roles of these financial statements is fundamental in finance and accounting. The income statement is focused on operational performance, while the balance sheet provides insight into overall financial health. This distinction is crucial for stakeholders, including managers, investors, and creditors, as it helps them make informed decisions regarding the company's financial status and operational efficiency.

The other options reflect misunderstandings of the financial statements’ core purposes, with some suggesting context is needed or limiting the truth of the statement to specific types of organizations. In reality, both profit-oriented and non-profit entities utilize these statements in similar ways to gauge financial performance and position.