What is a balance sheet?

• A. A financial statement showing assets, liabilities, and equity at a specific date.
• B. A record of revenue and expenses over a period.
• C. A summary of cash inflows and outflows.
• D. A plan for future budgets.

Answer: (A)

A balance sheet is a financial snapshot taken at a specific date that shows what a business owns (assets), what it owes (liabilities), and the owner’s stake (equity). It follows the accounting equation: Assets = Liabilities plus Equity, so the totals must balance. This is different from the income statement, which covers revenues and expenses over a period, and from the cash flow statement, which tracks cash inflows and outflows. For example, if on a given date a company has assets of 7,000, including cash and inventory, and it owes 3,000 to suppliers and 2,000 as a loan, with 2,000 in equity, the assets and liabilities plus equity balance (7,000 = 3,000 + 2,000 + 2,000). The balance sheet also tends to be divided into current and non-current assets and liabilities, plus owners’ equity.