What is the primary function of a balance sheet?

What is the primary function of a balance sheet?

• A. Track income over a month
• B. Record all expenses and payments
• C. Show a company's net worth at a point in time
• D. Forecast future earnings

Answer: (C)

The primary function of a balance sheet is to show a company's net worth at a specific point in time. It provides a snapshot of the company's financial position by detailing what the company owns (assets) and what it owes (liabilities), which ultimately reveals the owner's equity or the net worth of the company. This information is crucial for stakeholders, including investors and creditors, as it helps them assess the financial health and stability of the business. While tracking income over a month, recording expenses and payments, and forecasting future earnings are important aspects of financial management, they are functions related to other financial statements such as the income statement and cash flow statement. The balance sheet specifically focuses on the company's condition at a single moment, making it essential for evaluating liquidity and overall financial strength.

The primary function of a balance sheet is to show a company's net worth at a specific point in time. It provides a snapshot of the company's financial position by detailing what the company owns (assets) and what it owes (liabilities), which ultimately reveals the owner's equity or the net worth of the company. This information is crucial for stakeholders, including investors and creditors, as it helps them assess the financial health and stability of the business.

While tracking income over a month, recording expenses and payments, and forecasting future earnings are important aspects of financial management, they are functions related to other financial statements such as the income statement and cash flow statement. The balance sheet specifically focuses on the company's condition at a single moment, making it essential for evaluating liquidity and overall financial strength.