CSLB Contractor's Law & Business Practice Exam

What document represents a company's financial position on a specific date?

1. Balance sheet

2. Income statement

3. Cash flow statement

4. Profit plan

The correct answer is: Balance sheet

The balance sheet is the document that represents a company's financial position at a specific point in time. It provides a snapshot of what the company owns (assets), what it owes (liabilities), and the residual interest of its owners (equity) on that date. This is crucial for stakeholders, including investors, creditors, and management, as it demonstrates the company's financial health and stability. The income statement, on the other hand, summarizes revenues and expenses over a period, showing how much the company earned or lost during that time. The cash flow statement details the cash inflows and outflows over a specific period, reflecting how cash moves in and out of the business. While the profit plan outlines the strategy for achieving financial targets, none of these documents serve the specific purpose of depicting the company's financial position on a particular date like the balance sheet does. Thus, the balance sheet is the correct choice in this context.