Types of Financial Statements – MCQ

Practice Question

Intro to Financial Accounting
Financial Statements and Business Decisions
Types of Financial Statements
MCQs

Which of the following best describes the purpose of a statement of cash flows?

  1. To show the changes in retained earnings over time
  2. To summarize the financial position of a company at a point in time
  3. To provide information about cash inflows and outflows categorized into operating, investing, and financing activities
  4. To report revenues and expenses over a specific period
Answer +
Correct Answer: C
Explanation +

The statement of cash flows shows how cash moves through a company over a specific period. It breaks down cash activity into three categories: operating, investing, and financing.

This information helps stakeholders assess liquidity, solvency, and financial flexibility—key indicators of a company’s health and ability to fund operations and meet obligations.

The other options refer to the statement of retained earnings (A), the balance sheet (B), and the income statement (D).