What is the purpose of an income statement?

• A. It shows all assets and liabilities at a point in time.
• B. It tracks the district's revenue and expenditures over a period to determine profitability or deficit.
• C. It reports cash on hand only.
• D. It records budget approvals.

Answer: (B)

The main idea is that an income statement shows the district’s revenues and expenditures over a period to determine net income or deficit. It reflects how well resources were used during that time by comparing what was earned with what was spent, producing a surplus or shortfall for the period. This is different from a balance sheet, which is a snapshot of assets and liabilities at a moment in time, or from cash reporting, which focuses on cash on hand. Budget approvals are part of the planning process, not the performance summary shown on the income statement.