National Association of Boards of Long Term Care Administrator (NAB) CORE Practice Exam

Which type of financial statement is derived from the analysis of other statements and contains more detail on financial activity?

1. Profit and loss

2. Cash flow

3. Changes in financial position

4. Retained earnings

The correct answer is: Profit and loss

The profit and loss statement, also known as the income statement, is indeed derived from the analysis of other financial data and usually provides detailed insight into a company's financial performance over a specific period. It outlines revenues, expenses, and ultimately profits or losses, thus offering a comprehensive overview of operational performance. This statement aggregates information found in other financial statements, such as revenues from the cash flow statement and expenses from various sources, giving stakeholders a clear picture of how the organization is performing financially. In contrast, the cash flow statement primarily focuses on the cash inflows and outflows of an organization, not detailing profitability directly, while changes in financial position generally emphasizes alterations in overall equity or assets versus liabilities. The retained earnings statement reflects the cumulative earnings retained in the business, not focusing on the extensive details of the operational activity presented in a profit and loss statement. Therefore, the profit and loss statement stands out as the document that summarises and derives its content from various facets of financial activity.