A labor union uses financial statements to determine profitability and the organization's ability to pay salaries.

A labor union uses financial statements to determine profitability and the organization's ability to pay salaries.

• A. To set the organization's product prices
• B. To determine depreciation
• C. To check profitability to ensure salaries can be paid
• D. To assess cash equivalents

Answer: (C)

Financial statements reveal whether an organization is earning money and whether it has enough cash to cover ongoing expenses like salaries. The most direct purpose in this context is to look at profitability and cash flow to determine if salary obligations can be met over time. If the statements show the organization is profitable and generating sufficient cash, salaries are more likely to be sustainable. Depreciation, while it affects reported income, is an accounting allocation of asset costs and does not show actual cash available to pay employees. Setting product prices is a broader strategic decision and not something the statements themselves determine. Assessing cash equivalents focuses on how quickly assets can be turned into cash, which is part of liquidity but doesn’t address overall profitability and long-term ability to pay salaries.

Financial statements reveal whether an organization is earning money and whether it has enough cash to cover ongoing expenses like salaries. The most direct purpose in this context is to look at profitability and cash flow to determine if salary obligations can be met over time. If the statements show the organization is profitable and generating sufficient cash, salaries are more likely to be sustainable.

Depreciation, while it affects reported income, is an accounting allocation of asset costs and does not show actual cash available to pay employees. Setting product prices is a broader strategic decision and not something the statements themselves determine. Assessing cash equivalents focuses on how quickly assets can be turned into cash, which is part of liquidity but doesn’t address overall profitability and long-term ability to pay salaries.