Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is the typical content of a profit and loss statement?

1. A summary of cash transactions only

2. A list of assets and liabilities

3. A summary of revenue and expenses over a period

4. A breakdown of daily sales transactions

The correct answer is: A summary of revenue and expenses over a period

A profit and loss statement, also known as an income statement, provides a comprehensive summary of a company's revenues and expenses over a specific period. This financial document is crucial for assessing the business's performance, as it reveals how much money the company generated from its operations and how much it spent. The primary goal is to determine the net profit or loss by subtracting total expenses from total revenues. Understanding this statement is vital for business leaders as it helps in making informed decisions regarding budgeting, forecasting, and overall financial strategy. The other options do not capture the essence of a profit and loss statement. For example, focusing solely on cash transactions misses out on credit sales and expenses not immediately paid in cash. A list of assets and liabilities pertains instead to a balance sheet, providing a snapshot of what a business owns and owes at a particular point in time. Lastly, a breakdown of daily sales transactions is too granular for a profit and loss statement, which aggregates data over a longer time frame to show overall financial performance.