What is a balance sheet?

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It is structured to show three key components: assets, liabilities, and equity.

Assets represent what the company owns, such as cash, inventory, and property. Liabilities indicate what the company owes to others, such as loans and accounts payable. Equity, often referred to as shareholders' equity, reflects the owners' claim on the assets after all liabilities have been deducted.

This clear presentation enables stakeholders, including investors, creditors, and management, to understand the financial health of the business, assess its leverage, and evaluate its overall stability. The balance sheet maintains the fundamental accounting equation: Assets = Liabilities + Equity, which ensures that the financial statements are balanced.

In contrast, the other options focus on different aspects of financial reporting: one pertains to income and expenses (which describes an income statement), another summarizes cash movements (referring to a cash flow statement), and the last involves future projections (related to forecasting).