Certified Financial Management Specialist Practice Exam

Which financial document provides a snapshot of a company's assets and liabilities?

1. Income Statement

2. Statement of Cash Flows

3. Balance Sheet

4. Profit and Loss Statement

The correct answer is: Balance Sheet

The balance sheet is the financial document that provides a snapshot of a company's assets and liabilities at a specific point in time. It presents a clear picture of what the company owns (assets) and what it owes (liabilities), making it essential for assessing the company's financial health and stability. The difference between the assets and liabilities represents the shareholders' equity, indicating the net worth of the company. Understanding the balance sheet is crucial for investors, creditors, and management, as it allows them to analyze the company's solvency and liquidity. This financial statement is structured into three main sections: assets, liabilities, and equity. Each section provides insights into different aspects of the company's financial standing. In contrast, the income statement focuses on the company’s revenues and expenses over a specific period, while the statement of cash flows summarizes the inflows and outflows of cash, reflecting how well the company manages its cash to fund its obligations and expand its operations. The profit and loss statement is essentially similar to the income statement and also does not provide the same snapshot of financial position as the balance sheet does. Hence, the balance sheet is the document specifically designed to show assets and liabilities at a specific moment, making it the correct answer.