Certified Financial Management Specialist Practice Exam

Which financial report provides a snapshot of a company's assets, liabilities, and equity?

1. Balance Sheet

2. Income Statement

3. Cash Flow Statement

4. Statement of Changes in Equity

The correct answer is: Balance Sheet

The balance sheet is the financial report that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. This statement is essential because it reflects the financial position of a company, detailing what the company owns (assets) and what it owes (liabilities), along with the residual interest of the shareholders (equity). Assets on the balance sheet are divided into current assets, which are expected to be converted into cash or used within one year, and non-current assets, which are long-term investments or physical assets. Liabilities are similarly categorized into current liabilities, due within a year, and long-term liabilities. Equity represents the ownership interest in the company after all obligations have been settled. The balance sheet is crucial for investors and creditors as it helps assess the company's capital structure, financial health, and liquidity position. Understanding the balance sheet allows stakeholders to evaluate how effectively the company is managing its resources and obligations. The other financial reports serve different purposes; the income statement shows a company's revenues and expenses over a period, the cash flow statement reveals the cash generated and spent, and the statement of changes in equity outlines changes in ownership equity due to transactions, profits, and losses. Together, these reports provide a comprehensive view of a