Which of the following statements is true about a financial statement?

Which of the following statements is true about a financial statement?

• A. It includes only cash transactions
• B. It provides a summary of financial performance
• C. It reflects future earnings projections
• D. It is only necessary for large corporations

Answer: (B)

The chosen statement highlights that a financial statement provides a summary of financial performance, which accurately captures its fundamental purpose. Financial statements, such as the income statement, balance sheet, and cash flow statement, are designed to convey essential information about an entity's financial status over a specific period. This summary allows stakeholders, including investors, creditors, and management, to assess how well the entity has performed financially, understand its profitability, liquidity, and overall financial health. The other statements do not correctly represent the comprehensive nature of financial statements. While it's true that some financial statements will include cash transactions, they encompass more than just those—such as credit transactions and accrued expenses. Additionally, financial statements are historical records and do not project future earnings; forecasts belong to separate financial documents and analysis. Lastly, financial statements are not limited to large corporations; they are vital for businesses of all sizes, including small businesses and even individuals, to track and report financial performance.

The chosen statement highlights that a financial statement provides a summary of financial performance, which accurately captures its fundamental purpose. Financial statements, such as the income statement, balance sheet, and cash flow statement, are designed to convey essential information about an entity's financial status over a specific period. This summary allows stakeholders, including investors, creditors, and management, to assess how well the entity has performed financially, understand its profitability, liquidity, and overall financial health.

The other statements do not correctly represent the comprehensive nature of financial statements. While it's true that some financial statements will include cash transactions, they encompass more than just those—such as credit transactions and accrued expenses. Additionally, financial statements are historical records and do not project future earnings; forecasts belong to separate financial documents and analysis. Lastly, financial statements are not limited to large corporations; they are vital for businesses of all sizes, including small businesses and even individuals, to track and report financial performance.