Question

Accountants focus on creating financial statements, whereas finance professionals mostly use these statements to evaluate a firm and answer questions about its performance. Indicate which financial statement would be the most helpful in answering the questions in the following table.
Balance Sheet
Statement of Cash Flows
How much cash is a firm generating through operating, investing, and financing activities?
How much debt and equity has the firm issued to finance its assets?
If compensation for senior management is based on short-term performance of the firm, in the short run the firm is likely to:_________.
Overstate its earnings
Understate its earnings

Answer 1

Answer:

How much debt and equity has the firm issued to finance its assets?

Balance Sheet

How much cash is a firm generating through operating, investing, and financing activities?

Statement of Cash Flows

If compensation for senior management is based on short-term performance of the firm, in the short run the firm is likely to:_________.

Overstate its earnings

Explanation:

The statement of cash flows in the financial statements prepared by the accountant shows outgoing and incoming cash for the period and also the cash balance . Balance sheet also called statement of financial position reflects or shows the assets and liabilities of the company which are broken down to equities and debts in classifying capital sources

Senior management can overstate earnings if company's performance in the short-run is the basis for their earnings. This is because long-term performance of company is not considered and short run earnings of company is characterized by short-sightedness, inflated figures and inconsistencies in performance to maximize earnings