which one of the following items is not found on a balance sheet?
A. Cash
B. Gross Profit
C. Assests
D. Liabilities
The correct answer and explanation is:
The correct answer is B. Gross Profit.
A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It lists a company’s assets, liabilities, and equity. The balance sheet is based on the accounting equation:
Assets = Liabilities + Equity
Each of these categories is broken down further on the balance sheet:
- Assets: These are things that a company owns and are divided into current assets (cash, accounts receivable, inventory) and non-current assets (property, equipment, intangible assets).
- Liabilities: These are the company’s debts or obligations, including both current liabilities (accounts payable, short-term loans) and long-term liabilities (long-term debt, pension obligations).
- Equity: This represents the owner’s residual interest in the assets of the company after deducting liabilities. It is often called shareholders’ equity or net worth.
Gross profit, on the other hand, is not found on the balance sheet. Gross profit is an income statement item, not a balance sheet item. It is calculated by subtracting the cost of goods sold (COGS) from revenue. Gross profit shows how efficiently a company is producing and selling its products, but it does not reflect the company’s financial position, which is what the balance sheet is meant to provide.
In summary, the balance sheet focuses on a company’s financial position at a specific moment in time, showing what it owns (assets) and what it owes (liabilities), along with the net worth or equity of the owners. Gross profit, however, is part of the company’s income statement and provides insights into its profitability, not its financial position.