Cash Flows from Operating, Investing, ...
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The balance sheet can provide very useful information to users of financial statements. It, however, has several limitations.
The balance sheet gives insight into a company’s financial condition at a particular point in time. It reflects the resources that are controlled by the company as well as how these resources were financed.
The balance sheet can assist analysts in assessing a company’s ability to:
Question
Which of the following statements is incorrect?
- Items on the balance sheet are not measured in the same manner.
- The balance sheet cannot assist in assessing a company’s ability to meet future debt obligations.
- An analyst can use the balance sheet to assess a company’s ability to pay for its short-term obligations.
Solution
The correct answer is B.
This statement incorrectly states that the balance sheet cannot assist in assessing a company’s ability to meet future debt obligations. This is not correct; the balance sheet can assist in assessing a company’s ability to meet its future debt obligations as well as pay for its short-term obligations (Option C).
Option A correctly states that items on the balance sheet are not measured in the same manner; some are measured at historical cost, while others are measured based on their current value.