Business Degree Certification Practice Test

What financial statement provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time?

1. Income statement

2. Cash flow statement

3. Balance sheet

4. Retained earnings statement

The correct answer is: Balance sheet

The balance sheet is the financial statement that provides a snapshot of a company’s assets, liabilities, and equity at a specific point in time. It presents a detailed view of what the company owns (assets), what it owes (liabilities), and the residual interest of the owners (equity) in the company, effectively summarizing the company’s financial position at that moment. The balance sheet follows the accounting equation, which states that assets equal liabilities plus equity. This relationship ensures that all resources of the company are accounted for by either obligations (liabilities) or investment by the owners (equity). The balance sheet is typically prepared at the end of an accounting period, providing valuable insights for analysts, investors, and stakeholders about the company’s financial stability and operational capacity. Other financial statements, like the income statement, provide information about revenue and expenses over a period of time, detailing the company’s performance, while the cash flow statement focuses on the movement of cash in and out of the business, reminding the stakeholders about liquidity rather than the overall financial position. The retained earnings statement reflects changes in equity, specifically the retained earnings over a period, not giving a complete stock of all financial components at a point in time.