Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

In a financial plan, which statement summarizes a company’s profitability over a specific period?

1. Income statement

2. Balance sheet

3. Cash flow statement

4. Profit and loss statement

The correct answer is: Income statement

The statement that summarizes a company's profitability over a specific period is the income statement. This financial document provides a detailed account of revenues, expenses, and ultimately the net income or loss of a business during a designated period, typically monthly, quarterly, or annually. The income statement allows stakeholders, including management, investors, and creditors, to assess the company’s operational efficiency and profitability during that time frame. It highlights how much money was made (revenues) and how much was spent (expenses), providing a clear picture of the company’s financial performance. The other financial statements mentioned serve different purposes. The balance sheet provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time, reflecting its overall financial situation rather than its performance over time. The cash flow statement details the inflows and outflows of cash, showing how well a company manages its cash position but not profitability per se. The profit and loss statement is often used interchangeably with the income statement, but it can sometimes denote a specific format or report used within different business contexts. Nonetheless, in the context of standardized financial reporting, the income statement is the correct terminology and document to summarize profitability.