Certified Financial Management Specialist Practice Exam

Which financial statement balances assets and liabilities?

1. Income statement

2. Cash flow statement

3. Balance sheet

4. Statement of changes in equity

The correct answer is: Balance sheet

The balance sheet is the financial statement that specifically presents a company's assets, liabilities, and equity at a given point in time. It follows the fundamental accounting equation, which states that assets must equal liabilities plus equity. This means that every asset a company owns is financed either through debt (liabilities) or through shareholders' equity. In contrast, the income statement focuses on a company's revenues and expenses over a period of time, showing profitability but not the overall financial position. The cash flow statement provides insights into the inflows and outflows of cash, detailing how cash moves within the business but not comparing total assets and liabilities. The statement of changes in equity outlines the changes in equity accounts but does not detail the balances of assets and liabilities. Thus, the balance sheet is essential for assessing a company’s liquidity, financial stability, and funding structure, which is why it is the correct answer.