Which financial statement shows that a company's resources equal claims to those resources?

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

Answer: (D)

Verified step by step guidance

1. Understand the purpose of each financial statement: The Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows each serve different purposes in financial reporting.
2. Recall that the Balance Sheet is structured around the accounting equation: Assets = Liabilities + Equity. This equation shows that a company's resources (assets) are equal to the claims on those resources (liabilities and equity).
3. The Income Statement reports a company's revenues and expenses over a period, showing profitability, but it does not directly show the equality of resources and claims.
4. The Statement of Retained Earnings explains changes in retained earnings over a period, linking the Income Statement and Balance Sheet, but it does not display the equality of resources and claims.
5. The Statement of Cash Flows provides information about cash inflows and outflows, categorized into operating, investing, and financing activities, but it does not show the equality of resources and claims. Therefore, the Balance Sheet is the correct answer.