What is the purpose of a balance sheet?

The purpose of a balance sheet is to provide a snapshot of a company's financial position at a specific point in time. It lists the company’s assets, liabilities, and equity, allowing stakeholders to assess its financial health and performance. This snapshot helps individuals, investors, and management understand what the company owns and owes, as well as the net worth or equity that belongs to the shareholders.

In this context, options that describe reports showing revenue and expenses over a specific period, tracking cash inflows and outflows, or detailing tax obligations do not align with the primary function of a balance sheet. Each of those reports serves a different purpose in financial analysis and accounting, such as measuring profitability or managing liquidity, rather than outlining the overall financial position on a certain date. Thus, the focus of the balance sheet is vital for evaluating the long-term viability of a business.