Distinguish between an income statement and a balance sheet.

• A. The income statement shows assets and liabilities; the balance sheet shows revenues and expenses.
• B. The income statement shows performance over a period (revenues/expenses/net income); the balance sheet shows financial position at a point in time (assets, liabilities, equity).
• C. The income statement lists cash flows; the balance sheet lists equity.
• D. The income statement is a snapshot; the balance sheet shows activity over time.

Answer: (B)

The main idea is about timing and purpose: the income statement measures performance over a period, listing revenues and expenses to arrive at net income, while the balance sheet shows the financial position at a specific date, listing assets, liabilities, and equity. This separation matters because the result of the income statement (net income) flows into equity on the balance sheet as retained earnings, linking the two statements. For example, as you earn revenue and incur expenses during the period, the income statement updates your net income; at period end, that net income increases retained earnings on the balance sheet, reflecting the overall profitability in the business’s financial position. The other options mix up what each statement reports (assets and liabilities belong on the balance sheet, not the income statement; revenues and expenses belong on the income statement, not the balance sheet) and confuse the role of the cash flow statement or the idea of a snapshot versus over-time activity.