Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

Which financial document is crucial for showing how cash moves in and out of a business?

1. Cash flow statement

2. Income statement

3. Profit and loss statement

4. Balance sheet

The correct answer is: Cash flow statement

The cash flow statement is crucial for demonstrating how cash moves in and out of a business because it provides a detailed overview of the company's cash inflows and outflows over a specific period. This document is essential for understanding a company's liquidity, as it shows the sources of cash (such as operating activities, investing activities, and financing activities) and how that cash is used. By analyzing the cash flow statement, stakeholders can assess the operational efficiency of the business, its ability to generate cash from its operations, and whether it can meet its financial obligations. While the income statement and profit and loss statement provide information about a company's revenues and expenses, they do not necessarily reflect the actual cash movements. Similarly, the balance sheet outlines the financial position of a company at a specific point in time but does not indicate cash movement. Therefore, the cash flow statement is the key financial document that accurately captures the dynamics of cash transactions within a business.