What is the primary focus of the income statement?

The primary focus of the income statement is to reflect revenues and expenses in order to demonstrate the profit or loss of a company over a specific period. This financial statement provides a clear overview of the company’s operational performance by detailing how much money was earned (revenues) and how much was spent (expenses) during that timeframe.

By analyzing the income statement, stakeholders can assess the company's ability to generate profit, control costs, and ultimately evaluate its financial health. This information is essential for investors and management alike, as it helps in decision-making processes related to operations, investment strategies, and resource allocation.

While evaluating assets and liabilities is a function of the balance sheet, and cash inflows and outflows are covered in the cash flow statement, the income statement specifically focuses on the flow of income and expenses, providing insights that are crucial for understanding profitability. Changes in equity, typically reflected in the statement of changes in equity or the balance sheet, do not serve as the primary purpose of the income statement.