Final answer:
Profits or losses incurred by an organization are represented by the income statement, which details revenue and expenses to determine a company's financial performance over a set period. It showcases the budget deficit or surplus and differs from other financial tools such as ratio analysis, balance sheets, and expense budgets. The correct answer is b. income statement.
Step-by-step explanation:
The profits or losses incurred by an organization are represented by a financial document known as an income statement. This statement is a vital component of a company's financial reporting and is used to convey the company's performance over a specified period, usually a fiscal quarter or year.
An income statement details revenue (taxes, in the case of government) and expenses (spendings) and highlights whether the entity has made a profit or incurred a loss by subtracting expenses from revenues. The result of this calculation shows the annual budget deficit or surplus, the former being the situation where expenses exceed revenue and vice versa for the latter.
Ratio analysis, balance sheets, and expense budgets are also tools used in financial analysis and accounting. However, they serve different purposes: ratio analysis compares different figures from the balance sheet and income statement to derive meaningful conclusions about a company's financial health; a balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time; and an expense budget is a plan that estimates future expenses for a particular period.
Therefore, in the context of representing profits or losses, the correct option is b. income statement.