The statement that provides the financial position of a company as of a specific date is the a. balance sheet. b. statement of cash flows. c. income statement. d. statement of stockholders’ equity.
The correct answer and explanation is:
The correct answer is a. balance sheet.
The balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It shows what the company owns (assets), what it owes (liabilities), and the owners’ equity in the business. This statement is sometimes called the statement of financial position because it details the financial standing of the company as of a particular date, often the end of a fiscal period.
The balance sheet is divided into three main sections:
- Assets: These are resources controlled by the company that are expected to bring future economic benefits. Assets include current assets such as cash, accounts receivable, and inventory, as well as non-current assets like property, plant, and equipment.
- Liabilities: These are the company’s obligations or debts that it must pay to outside parties. Liabilities can be current (due within one year, like accounts payable or short-term loans) or long-term (such as bonds payable or mortgages).
- Stockholders’ Equity: This represents the owners’ claim on the assets after all liabilities are settled. It includes common stock, retained earnings, and additional paid-in capital.
The balance sheet follows the fundamental accounting equation:
Assets = Liabilities + Stockholders’ Equity
This equation must always be in balance, which is why the statement is called a balance sheet.
Unlike the income statement or statement of cash flows, which cover financial performance or cash movements over a period, the balance sheet focuses on a single date. This allows investors, creditors, and management to assess the company’s liquidity, solvency, and overall financial health at that moment. It helps determine if the company has enough resources to meet its obligations and how it finances its operations.