What is the primary purpose of a balance sheet?

The primary purpose of a balance sheet is to present a company's assets, liabilities, and equity at a specific moment in time. This financial statement offers a snapshot of the company's financial position, showing what it owns (assets), what it owes (liabilities), and the residual interest of the owners or shareholders (equity). By doing so, it allows stakeholders, such as investors, creditors, and management, to assess the company’s financial strength, liquidity, and overall stability as of the date indicated on the balance sheet.

Understanding this moment-in-time representation is crucial because it differs from other financial statements, which may report over a period. For example, a profit and loss statement reflects earnings over a year, while cash flow statements detail cash movement across time. Hence, the balance sheet’s unique perspective is essential for evaluating a company’s short-term and long-term financial health.