Florida General Contractor Practice Exam

Bob's financial statement that reflects his equity in the company is known as what?

1. Balance Sheet

2. Income Statement

3. Cash Flow Statement

4. Statement of Changes in Equity

The correct answer is: Balance Sheet

The financial statement that reflects Bob's equity in the company is the balance sheet. This statement provides a snapshot of the company’s financial position at a specific point in time, detailing assets, liabilities, and equity. The equity section of the balance sheet is crucial as it shows the owners' value stake in the company after all liabilities have been deducted from assets. The balance sheet organizes the company's financial information into a clear structure, where the equation Assets = Liabilities + Equity holds true. This allows stakeholders, including the owner, investors, and creditors, to assess the overall financial health and equity position of the business. In contrast, an income statement measures the company's performance over a specific period, detailing revenues and expenses to result in net income or loss, but it does not provide a snapshot of equity. The cash flow statement focuses on cash inflows and outflows, providing insights into liquidity rather than ownership equity. Lastly, the statement of changes in equity specifically tracks changes in equity accounts but is not the primary statement that presents total equity alongside assets and liabilities. Thus, the balance sheet is the most comprehensive choice for reflecting Bob's equity in the company.