Which of the following best describes the primary purpose of a balance sheet prepared for Wells Technical Institute as of December 31?

• A. To show the cash inflows and outflows for the institute during the year.
• B. To summarize the revenues and expenses of the institute over a period of time.
• C. To detail the changes in the institute's retained earnings during the year.
• D. To report the financial position of the institute by listing its assets, liabilities, and equity at a specific date.

Answer: (D)

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 an entity's financial position at a specific point in time. It lists assets, liabilities, and equity to show what the entity owns, owes, and the residual interest of the owners.
2. Step 2: Differentiate the balance sheet from other financial statements. For example, the cash flow statement shows cash inflows and outflows over a period, the income statement summarizes revenues and expenses over a period, and the statement of retained earnings details changes in retained earnings during the year.
3. Step 3: Focus on the specific date aspect. The balance sheet is unique because it reports the financial position as of a specific date, such as December 31, rather than over a period of time.
4. Step 4: Relate the balance sheet components to the financial position. Assets represent resources owned by the entity, liabilities represent obligations owed, and equity represents the owners' residual interest after liabilities are subtracted from assets.
5. Step 5: Conclude that the primary purpose of the balance sheet is to report the financial position of the institute by listing its assets, liabilities, and equity at a specific date, which aligns with the correct answer provided in the problem.