What is the purpose of an income statement?

The purpose of an income statement is to summarize a business's revenues and expenses over a specific period, typically a quarter or a year. This financial statement provides insight into a company's financial performance, allowing stakeholders to assess profitability by presenting the total revenues generated and the expenses incurred during that timeframe.

By analyzing the income statement, one can determine whether the business is operating at a profit or a loss, as it shows the net income or loss by subtracting total expenses from total revenues. This component is crucial for management decisions and for investors who evaluate a company's ability to generate earnings relative to its expenses.

The other options focus on different financial statements: showing liability positions pertains to the balance sheet, illustrating cash balance is a function of the cash flow statement, and long-term investments typically relate to other financial disclosures. These aspects do not capture the comprehensive performance of a company over time, which is why they don't align with the primary function of the income statement.