What is the purpose of a balance sheet?

A balance sheet serves the critical purpose of providing a snapshot of an organization's financial position at a specific point in time. It presents the company’s assets, liabilities, and shareholders' equity, allowing stakeholders to assess the net worth and financial stability of the business. This information is vital for understanding the resources available to the company, its obligations, and the residual interest of the owners after all liabilities have been settled. By analyzing the balance sheet, stakeholders can make informed decisions regarding the organization’s financial health, such as assessing liquidity, efficiency, and leverage.

The other options focus on different aspects of financial reporting: cash flow activities are captured in the statement of cash flows, while summarizing income and expenses falls under the income statement. Ownership equity changes are typically detailed in the statement of changes in equity. Each of these documents serves distinct roles in the overall financial reporting framework, but the balance sheet specifically highlights the financial position, making it essential for evaluating a company's stability and viability at a single point in time.