DECA Hospitality Services Team Decision Making Practice Exam

Which financial statement shows a company's assets, liabilities, and equity?

1. Income statement

2. Balance sheet

3. Cash flow statement

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 financial position at a specific point in time. It presents the values of assets, liabilities, and equity, which are the primary components that define the financial health and structure of a business. Assets represent everything that the company owns or controls that has economic value, including cash, inventory, property, and accounts receivable. Liabilities, on the other hand, indicate what the company owes to outsiders, such as loans, accounts payable, and other financial obligations. Equity represents the residual interest in the company's assets after deducting liabilities, essentially reflecting the owner's stake in the business. By organizing this information, the balance sheet helps stakeholders, including investors and management, assess the company's financial stability and operational efficiency, enabling them to make informed decisions. The other financial statements serve different purposes. The income statement details a company's revenues and expenses over a specific period, illustrating its profitability. The cash flow statement tracks the actual cash inflows and outflows over time, providing insight into the company's liquidity. The retained earnings statement summarizes changes in retained earnings from net income and dividends over a specific period. Each statement plays a crucial role in financial analysis, but the balance sheet is uniquely positioned to show the company's