Which one of the following is a key financial statement that a new business owner should be prepared to generate?

• A. Purchase Order
• B. Employee Timesheet
• C. Balance Sheet
• D. Inventory Requisition Form

Answer: (C)

Verified step by step guidance

1. Understand the purpose of financial statements: Financial statements are formal records of the financial activities and position of a business. They are essential for decision-making, tracking performance, and communicating financial health to stakeholders.
2. Learn about the Balance Sheet: The Balance Sheet is one of the key financial statements. It provides a snapshot of a company's financial position at a specific point in time, showing assets, liabilities, and equity. The fundamental accounting equation is Assets = Liabilities + Equity.
3. Differentiate the Balance Sheet from other documents: A Purchase Order, Employee Timesheet, and Inventory Requisition Form are operational documents used for specific business processes, but they do not provide a comprehensive view of the financial position of the business like the Balance Sheet does.
4. Recognize the importance of the Balance Sheet for a new business owner: As a new business owner, generating a Balance Sheet is crucial for understanding the financial health of the business, securing loans, attracting investors, and ensuring compliance with accounting standards.
5. Prepare to generate a Balance Sheet: To create a Balance Sheet, gather information about the company's assets (e.g., cash, inventory, equipment), liabilities (e.g., loans, accounts payable), and equity (e.g., owner's capital). Organize these items into the appropriate categories and ensure the accounting equation balances.