Q1Q - Intermediate Accounting (Kieso)

Question

How does information from the balance sheet help users of the financial statements?

Step-by-Step Solution

Answer

Financial capacity and financial flexibility can be determined using the company’s balance sheet.

Step 1: Meaning of Balance Sheet

The financial statement reporting the obligations and the resources is known as a balance sheet. It reports the obligations and the resources by classifying them as current and non-current.

Step 2: Use of information of the balance-sheet

Information reported in the balance sheet helps the analyst determine the company’s liquidity, solvency, financial capacity, and flexibility. It also provides the basic figures and data required to determine various financial ratios. Financial ratios such as current, quick, and debt-equity ratios are determined using the balance sheet.