Final answer:
The income statement actually reflects a company's financial performance over a specific period, not at a point in time. Businesses cease to exist primarily due to a lack of profitability and various market factors. However, businesses aim for long-term operations depending on their ability to remain profitable and adapt strategically.
Step-by-step explanation:
The statement that the income statement summarizes the operating activity of a firm at a particular point in time is false. Instead, an income statement provides a summary of a firm's financial performance over a specific period, typically a quarter or year. It details revenues, expenses, profits, and losses, which are critical in assessing the company's financial health and sustainability.
Businesses primarily exist to generate profits. Those that cannot maintain profitability may cease operations. A variety of factors can lead to a firm's exit from an industry, including but not limited to, an inability to compete, market saturation, changes in consumer preferences, technological advancements, or regulatory changes that impact the business environment. Some businesses may also decide that it is more beneficial to close rather than continue operating at a loss or with minimal profits.
Regarding the question of whether businesses operate in the long run, it is well understood that businesses aim for long-term operations. However, long-term sustainability depends on consistent profitability and strategic adaptability to market conditions. Therefore, businesses do operate in the long run if they can navigate the challenges and adapt to changes that occur in their industries over time.