What is a balance sheet?

A balance sheet is a key financial statement that provides a snapshot of an entity's financial position at a specific point in time. It summarizes the assets, liabilities, and equity of a business.

Assets represent what the company owns, such as cash, inventories, buildings, and equipment. Liabilities indicate what the company owes to others, including loans, accounts payable, and other debts. Equity reflects the owners' investment in the business and can be thought of as the net worth of the company when liabilities are subtracted from assets.

The balance sheet is fundamental for stakeholders, including management, investors, and creditors, as it offers insight into the financial health and stability of the organization. Understanding the relationship and proportions of assets, liabilities, and equity can help in evaluating the company's financial leverage and overall financial condition. This information is crucial for making informed business decisions and for analyzing the company’s performance over time.

In contrast, the other options do not accurately describe a balance sheet: a report on employee performance statistics focuses on workforce metrics, cash flow projections deal with inflows and outflows of cash over time, and sales and purchases records track revenue and expenses.