CSLB Contractor's Law & Business Practice Exam

What document is used to analyze the income and outflow of cash during a period of time?

1. Income statement

2. Cash flow statement

3. Balance sheet

4. Profit and loss statement

The correct answer is: Cash flow statement

The cash flow statement is specifically designed to analyze the income and outflow of cash over a designated period of time. It provides a detailed account of cash generated from operations, investing activities, and financing activities. By summarizing how much cash is entering and leaving the business, it enables stakeholders to assess the liquidity position of the company and its ability to meet short-term obligations. In contrast, the income statement primarily focuses on revenues and expenses, showing profitability over a specific timeframe without detailing cash flow specifics. The balance sheet presents a snapshot of the company’s financial position at a particular moment, outlining assets, liabilities, and equity. The profit and loss statement is synonymous with the income statement and also does not capture cash flows directly. Therefore, the cash flow statement is the most appropriate document for this analysis of cash movements.