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CLEP Financial Accounting Exam Prep

Category - CLEP Financial Accounting Test Practice Questions

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What is the purpose of the balance sheet?
  1. To show cash flow
  2. To show solvency and income of the company in the current period
  3. To provide information on revenue and expenses
  4. To show the gross profit margin
  5. To provide a snapshot of the company’s financial condition
Explanation
Answer - E - The balance sheet provides a snapshot of the company’s financial condition.

Key Takeaway: The balance sheet is used to provide a snapshot of a company’s financial condition. It consists of three parts: assets, liabilities, and owner’s equity. It serves as a summary of these balances and is the only financial statement that applies to a single date, as opposed to activity in a prior period.
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