What does the balance sheet report?

The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It is organized into three main components: assets, liabilities, and shareholders' equity.

Assets represent what the company owns, such as cash, inventory, and property. Liabilities represent what the company owes to others, including loans and accounts payable. Shareholders' equity represents the residual interest in the assets of the company after deducting liabilities, essentially indicating the net worth belonging to the shareholders.

This format allows stakeholders, including investors, creditors, and management, to assess the company's financial health and make informed decisions. The balance sheet is distinct from other financial statements, such as the income statement, which reports on profits and losses over a period, or the cash flow statement, which details cash inflows and outflows. By focusing on the current financial position rather than historical performance or specific transactions, the balance sheet serves as a crucial tool for evaluating the stability and solvency of a business.