Entrepreneurship and Small Business (ESB) Certification Practice Exam

What financial report is known as a profit and loss statement?

1. Balance sheet

2. Income statement

3. Cash flow statement

4. Retention report

The correct answer is: Income statement

The income statement is a financial report that provides a detailed account of a business's revenues, expenses, and profits over a specific period, typically a month or a year. It is often referred to as a profit and loss statement because it highlights the net profit or loss that the business has experienced during that period. This statement is crucial for assessing the financial health of a business, as it shows how effectively it generates profit by comparing income against various costs incurred during operations. In contrast, the balance sheet presents a snapshot of a company’s assets, liabilities, and equity at a specific point in time, providing insight into its overall financial stability. The cash flow statement tracks the movement of cash in and out of the business, focusing on liquidity rather than profitability. Lastly, a retention report may relate to customer retention rates or metrics, which is not a standard financial report for evaluating income or loss. Therefore, the income statement most accurately matches the description of a profit and loss statement.