Which of the following statements about the balance sheet is true?

• A. The balance sheet shows only the revenues and expenses for a period.
• B. The balance sheet reports a company's financial position at a specific point in time.
• C. The balance sheet is also known as the income statement.
• D. The balance sheet includes only cash transactions.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the purpose of the balance sheet. The balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It includes assets, liabilities, and equity, not revenues and expenses.
2. Step 2: Differentiate between the balance sheet and the income statement. The income statement reports a company's revenues and expenses over a period of time, while the balance sheet focuses on the financial position at a single point in time.
3. Step 3: Clarify the components of the balance sheet. The balance sheet includes all assets, liabilities, and equity, not just cash transactions. Assets include items like cash, accounts receivable, and inventory, while liabilities include accounts payable and loans.
4. Step 4: Evaluate the statements provided in the problem. Compare each statement to the definition and purpose of the balance sheet to determine which one is correct.
5. Step 5: Identify the correct statement. Based on the analysis, the correct statement is: 'The balance sheet reports a company's financial position at a specific point in time.'