A financial statement of a firm's current assets and liabilities is called a(n):

• 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 shows a company's revenues and expenses over a period, the Balance Sheet provides a snapshot of assets, liabilities, and equity at a specific point in time, the Statement of Retained Earnings tracks changes in retained earnings, and the Statement of Cash Flows details cash inflows and outflows.
2. Identify the key terms in the question: 'current assets' and 'liabilities' refer to items that are part of a company's financial position at a specific point in time.
3. Recognize that the Balance Sheet is the financial statement that lists current assets and liabilities, as it provides a snapshot of the firm's financial position, including assets, liabilities, and equity.
4. Eliminate incorrect options: The Income Statement does not focus on assets and liabilities but rather on revenues and expenses. The Statement of Retained Earnings tracks changes in retained earnings, and the Statement of Cash Flows focuses on cash movements.
5. Conclude that the correct answer is the Balance Sheet, as it is the financial statement that includes current assets and liabilities.