Based on the balance sheet information for Just Dew It Corporation for 2014 and 2015, which of the following statements is most likely correct?

• A. The balance sheet reports the company's revenues and expenses for the year.
• B. The balance sheet only includes information about the company's cash position.
• C. The balance sheet provides a summary of cash inflows and outflows during the year.
• D. The balance sheet shows the company's assets, liabilities, and equity as of a specific date.

Answer: (D)

Verified step by step guidance

1. Understand the purpose of a balance sheet: A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It includes three main components: assets, liabilities, and equity.
2. Clarify what the balance sheet does not include: The balance sheet does not report revenues and expenses for the year. These are reported in the income statement, which shows the company's performance over a period of time.
3. Distinguish the balance sheet from the cash flow statement: The balance sheet does not summarize cash inflows and outflows during the year. This information is provided in the cash flow statement, which tracks the movement of cash in and out of the business.
4. Explain why the balance sheet is not limited to cash: The balance sheet includes all assets (e.g., cash, accounts receivable, inventory, property), liabilities (e.g., accounts payable, loans), and equity (e.g., retained earnings, common stock), not just the company's cash position.
5. Conclude with the correct statement: The balance sheet shows the company's assets, liabilities, and equity as of a specific date, providing a snapshot of its financial health at that moment.