International Association of Accessibility Professionals (IAAP) Certified Administrative Professional (CAP) Practice Exam

Which financial statement details revenue, cost of goods sold, and gross profit?

1. Cash flow statement

2. Income statement

3. Balance sheet

4. Equity statement

The correct answer is: Income statement

The income statement is the financial statement that provides a detailed summary of a company's revenues, cost of goods sold, and gross profit. It serves to illustrate a company's income-generating activities over a specific period, typically illustrating how much money the business brought in (revenues) and how much it spent to produce the goods or services it sells (cost of goods sold). The gross profit is calculated by subtracting the cost of goods sold from total revenue, demonstrating how efficiently a company produces its goods. This statement is essential for stakeholders as it provides insights into operational performance and profitability. In contrast, other financial statements serve different purposes. The cash flow statement focuses on the cash inflows and outflows over a period, highlighting the liquidity and cash management of the business. The balance sheet presents a snapshot of a company's financial position at a specific point in time, detailing its assets, liabilities, and equity but does not break down revenues or costs. Lastly, the equity statement outlines changes in equity from transactions like dividends and retained earnings, which is not related to operational revenue and expenses. Thus, the income statement is the appropriate choice for detailing revenue, cost of goods sold, and gross profit.