Which of the following is a limitation of an entity's balance sheet?
A) If the business is cyclical, the balance sheet prepared at the end of the financial period may not be representative of the financial position at other times during the financial period.
B) The balance sheet may not include all items that create value for the entity.
C) The balance sheet is a historical representation of an entity's financial position and does not consider future growth potential.
D) All of the above are considered limitations of an entity's balance sheet.

Question

Quizplus · Accepted Answer

All three options listed are limitations of an entity's balance sheet. The first option highlights the limitation of the balance sheet representing only a snapshot at the end of a financial period and not reflecting changes throughout the period, particularly for cyclical businesses. The second option highlights the limitation of the balance sheet only including tangible assets and not capturing non-physical assets that may generate value. The third option emphasizes that the balance sheet is a historical representation and does not consider anticipated growth or changes in the future. All together, these are considered limitations of the balance sheet.

Which of the Following Is a Limitation of an Entity's