What is one key purpose of the income statement?

The income statement serves a fundamental role in financial reporting as it provides a summary of a company's revenues and expenses over a specific period, typically a quarter or a year. Its primary purpose is to evaluate past financial performance, allowing stakeholders to understand how well the business has performed in generating profits. By analyzing the income statement, investors, management, and analysts can identify trends in profitability, recognize the effectiveness of operational strategies, and make comparisons against competitors or industry benchmarks. This performance evaluation is essential for making informed decisions regarding future investments, operational adjustments, or strategic planning.

In contrast, while determining the current value of assets, assessing shareholder equity, and recording liabilities are all integral aspects of financial reporting, they do not fall under the specific purpose of the income statement. These elements are more related to the balance sheet and cash flow statement, which focus on different aspects of a company's financial health.