What is the purpose of the Income Statement?

The Income Statement serves a critical purpose in financial reporting by providing a detailed account of a company's revenues and expenses over a specific period. Its primary function is to calculate net income, which is achieved by subtracting total costs from total revenues. This calculation enables stakeholders, including investors, management, and analysts, to assess the company's profitability and operational efficiency. By outlining how much money a company has earned or lost during the reporting period, the Income Statement helps stakeholders make informed decisions regarding investment, management practices, and future strategies.

In contrast, the other options pertain to different financial statements or aspects of financial reporting. For example, the representation of assets and liabilities is the primary function of the Balance Sheet. The display of cash inflows and outflows aligns with the purpose of the Cash Flow Statement, which tracks liquidity and cash management rather than profitability. Lastly, stockholder equity pertains to the Balance Sheet as well, reflecting the net worth of a company after liabilities are deducted from assets. Each of these statements serves its unique function, but the Income Statement is distinct in its focus on calculating net income from revenues and expenses.