Which statement would you consult to assess liquidity at a specific date?

Which statement would you consult to assess liquidity at a specific date?

• A. Income statement
• B. Balance sheet
• C. Cash flow statement
• D. Statement of changes in equity

Answer: (B)

Liquidity at a specific date is shown on the balance sheet because it provides a snapshot of what the business owns and owes at that moment. It lists current assets (cash, receivables, inventory) and current liabilities (short-term obligations), so you can assess whether there are enough short-term resources to cover immediate debts, often using measures like working capital or the current ratio. The income statement shows performance over a period (revenues and expenses) and doesn’t tell you the exact financial position at a particular date. The cash flow statement tracks how cash moved during a period, highlighting changes in cash but not the snapshot of assets and liabilities at a date. The statement of changes in equity shows movements in owners’ equity, not liquidity. So the balance sheet is the best source to assess liquidity on a specific date.

Liquidity at a specific date is shown on the balance sheet because it provides a snapshot of what the business owns and owes at that moment. It lists current assets (cash, receivables, inventory) and current liabilities (short-term obligations), so you can assess whether there are enough short-term resources to cover immediate debts, often using measures like working capital or the current ratio.

The income statement shows performance over a period (revenues and expenses) and doesn’t tell you the exact financial position at a particular date. The cash flow statement tracks how cash moved during a period, highlighting changes in cash but not the snapshot of assets and liabilities at a date. The statement of changes in equity shows movements in owners’ equity, not liquidity. So the balance sheet is the best source to assess liquidity on a specific date.