The balance sheet is a financial statement that provides a snapshot of an individual's or company's financial position at a specific point in time. It includes assets, liabilities, and equity and is used to assess the financial health and stability of the individual or company.
Which of the following is NOT a component of a balance sheet?
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Select an option above to see an explanation here.
A) Assets are a component of a balance sheet. B) Liabilities are a component of a balance sheet. C) Equity is a component of a balance sheet. D) Revenue is not a balance sheet component; it is part of the income statement.
What is the primary purpose of a balance sheet?
A) A balance sheet shows an individual's or company's financial position at a specific point in time. B) An income statement shows an individual's or company's revenues and expenses over a specific period of time. C) A cash flow statement shows an individual's or company's cash inflows and outflows over a specific period of time. D) A balance sheet is not used to calculate tax liability.
Which of the following is considered a current asset?
A) Cash is a current asset that can be easily converted into other assets or used to pay liabilities. B) Real estate property is a non-current asset, as it is not expected to be converted into cash or used up within one year. C) Long-term investments are non-current assets, as they are not expected to be converted into cash or used up within one year. D) Mortgage payable is a liability, not an asset.
In the late 2000s, a major financial institution faced a liquidity crisis due to its high exposure to subprime mortgage assets. The bank's balance sheet showed significant non-current assets that were difficult to sell, leading to a cash shortage to meet its obligations. This ultimately resulted in the bank's collapse and a global financial crisis.
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Example Series 65 Example Practice Question
A young couple is looking to buy their first home. They create a balance sheet to assess their financial position, listing their assets (cash, investments, car), liabilities (student loans, credit card debt), and equity. By analyzing their balance sheet, they can determine their net worth and how much they can afford to spend on a down payment for a house.
Assets and liabilities, equity too, a balance sheet's what you need to view. To understand a client's financial state, a balance sheet will help you evaluate.