Sasha wants to generate a balance sheet. Which of the following best describes what a balance sheet reports?

• A. The revenues and expenses of a company over a period of time.
• B. The financial position of a company at a specific point in time, including assets, liabilities, and equity.
• C. The cash inflows and outflows of a company during a period.
• D. The changes in shareholders' equity over a period of time.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the purpose of a balance sheet. A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time.
2. Step 2: Identify the key components of a balance sheet. It includes three main sections: assets, liabilities, and equity. Assets represent what the company owns, liabilities represent what the company owes, and equity represents the residual interest of the owners.
3. Step 3: Differentiate the balance sheet from other financial statements. Unlike the income statement, which reports revenues and expenses over a period, or the cash flow statement, which tracks cash inflows and outflows, the balance sheet focuses on the financial position at a single point in time.
4. Step 4: Recognize the accounting equation that underpins the balance sheet: \( \text{Assets} = \text{Liabilities} + \text{Equity} \). This equation ensures that the balance sheet is balanced and reflects the company's financial structure.
5. Step 5: Based on the descriptions provided in the problem, identify that the correct answer is: 'The financial position of a company at a specific point in time, including assets, liabilities, and equity.' This aligns with the definition and purpose of a balance sheet.