CPIM Practice Exam

What does a balance sheet represent?

1. A summary of sales revenue over a period

2. A financial statement of a company's assets, liabilities, and equity

3. A report on physical inventory counts

4. A statement of cash flow and expenses

The correct answer is: A financial statement of a company's assets, liabilities, and equity

A balance sheet is a vital financial document that provides a snapshot of a company's financial position at a specific point in time. It details the company’s assets, liabilities, and equity, allowing stakeholders to assess its financial health. Assets represent everything the company owns that has value, like cash, inventory, and property. Liabilities detail what the company owes to creditors, such as loans and accounts payable. Equity, often referred to as net assets, reflects the residual interest in the assets of the company after deducting liabilities, typically representing the ownership stake of shareholders. This comprehensive view enables investors and management to evaluate the company's liquidity, financial stability, and capital structure, making option B the most accurate description of what a balance sheet represents. In contrast, the other options address different aspects of financial reporting. A summary of sales revenue over a period pertains to an income statement rather than a balance sheet. A report on physical inventory counts reflects operational aspects and is typically part of inventory management, while a statement of cash flow and expenses focuses on the company’s cash management and flow of cash rather than its overall financial position.