Certified Financial Management Specialist Practice Exam

What financial document provides a breakdown of revenue against business expenses?

1. Balance sheet

2. Income statement

3. Cash flow statement

4. Valuation statement

The correct answer is: Income statement

The income statement is the financial document that provides a detailed breakdown of revenue against business expenses. It illustrates a company’s financial performance over a specific reporting period, typically including various lines such as sales revenue, cost of goods sold, operating expenses, and net income. The income statement starts with total revenues and systematically deducts expenses to arrive at the net income or loss for the period. This gives stakeholders, including management, investors, and creditors, a clear view of how well the business is generating profit relative to its expenses, allowing for performance assessment and decision-making regarding future operations. The balance sheet, while also important, focuses on the financial position of a company at a specific point in time and provides insights into assets, liabilities, and equity but does not detail income and expenses over a period. The cash flow statement tracks the flow of cash in and out of the business but does not break down income against expenses; it instead highlights operational cash, investment cash, and financing cash flows. A valuation statement typically assesses the worth of a business or an asset, which is not the same as providing a breakdown of financial performance through revenue and expenses.