Fundamental Payroll Certification (FPC) Practice Exam

What does a balance sheet present?

1. The financial position of a business over time

2. Cash inflow and outflow

3. The business's financial position on a specific date

4. Details of employee payroll expenses

The correct answer is: The business's financial position on a specific date

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It details the company’s assets, liabilities, and equity, giving stakeholders a clear view of the financial resources available to the business and obligations owed to external parties. This focus on a specific date distinguishes the balance sheet from income statements, which show financial performance over a period of time. While cash inflow and outflow are tracked in cash flow statements, which detail the movement of cash into and out of a business, the balance sheet does not provide this information. Similarly, while the balance sheet can reference employee payroll expenses as part of liabilities (like payroll payable), it does not provide a comprehensive detail specifically about payroll. Lastly, the financial position of a business over time would be reflected in statements such as the income statement or statement of cash flows, not the static nature of a balance sheet.