What is the primary purpose of the income statement?

The primary purpose of the income statement is to present profitability over a specific period of time. This financial statement summarizes revenues, costs, and expenses, ultimately providing the net income or loss for the period. It allows stakeholders to evaluate how effectively a company generates profit through its operations, how well it manages its costs, and how performance trends develop over time.

Understanding profitability is crucial for various stakeholders, including investors, creditors, and management, because it helps assess the company's financial health and operational success. By focusing on revenues generated and costs incurred during the reporting period, the income statement enables users to gauge the company’s ability to generate earnings relative to its expenses.

Other aspects of financial reporting, like declaring dividends, looking at liquidity, and providing snapshots of assets, relate to different financial statements or metrics, but they do not encapsulate the primary function of the income statement.