Question
The balance sheet provides a snapshot of the company finances at one point in time. It helps assess risk. The income statement (or profit-and-loss statement;
The balance sheet provides a snapshot of the company finances at one point in time. It helps assess risk. The income statement (or profit-and-loss statement; P&L) shows how a company has performed over a specific period of time. It measures profitability. The cash flow statement records the difference between the money that came in and the money that went out. It also shows the reasons for the difference. It measures liquidity. All of these statements serve different functions, but they work in harmony with one another. Give three examples (one for each statement) of when these statements are needed and for what purpose. Stay away from vague generalities (e.g., Every business needs each of these statements.). Although such statements are true, it is important to recognize when each of the statements is most helpful, taking into consideration which questions can be answered using each statement. Include in your answer who is most interested in each of the statements (e.g., bankers, investors, small business owners).
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