What components are included in an income statement?

The income statement is a financial document that provides a summary of a company's revenues and expenses over a specific period, commonly a quarter or a year. The primary purpose of this statement is to show the company's profitability by detailing how much money was earned (revenue) and the costs associated with generating that revenue (cost and expenses).

Revenue signifies the total income generated from the sale of goods or services before any costs or expenses are deducted. Costs and expenses, on the other hand, include all the costs involved in running the business, such as the cost of goods sold, administrative expenses, salaries, and overhead. The bottom line of the income statement presents the net income or loss, which is calculated by subtracting total expenses from total revenue.

In contrast, the other choices include components not directly associated with the income statement. Assets and liabilities are elements found on a balance sheet, equity refers to the ownership interest in the company, and cash flows represent the cash movement that is recorded in the statement of cash flows. Sales and inventory focus on specific operational aspects but do not encompass the full scope of what constitutes an income statement. Thus, the inclusion of revenue, costs, and expenses captures the essence of financial performance for the period in question.