Which financial statement reports a company's assets and liabilities?

• A. Income Statement
• B. Balance Sheet
• C. Statement of Retained Earnings
• D. Statement of Cash Flows

Answer: (B)

Verified step by step guidance

1. Understand the purpose of each financial statement: The Income Statement reports a company's revenues and expenses, the Statement of Retained Earnings shows changes in retained earnings, the Statement of Cash Flows details cash inflows and outflows, and the Balance Sheet provides a snapshot of a company's financial position, including assets, liabilities, and equity.
2. Focus on the Balance Sheet: The Balance Sheet is specifically designed to report a company's assets, liabilities, and equity at a specific point in time.
3. Define assets and liabilities: Assets are resources owned by the company that provide future economic benefits, while liabilities are obligations the company owes to external parties.
4. Recognize the structure of the Balance Sheet: It is divided into three main sections—assets, liabilities, and equity. The fundamental accounting equation is Assets = Liabilities + Equity.
5. Conclude that the Balance Sheet is the correct financial statement for reporting a company's assets and liabilities, as it provides a clear and organized view of these elements.