What is the main purpose of a balance sheet?

The main purpose of a balance sheet is to show assets, liabilities, and equity, which provides a comprehensive view of a company’s financial position at a specific point in time. This financial statement is crucial for understanding the organization’s resources (assets), the obligations it owes (liabilities), and the ownership interest in those assets (equity). By analyzing these components, stakeholders can assess liquidity, financial stability, and overall health of the business.

While profitability is important, that information is more effectively communicated through an income statement rather than a balance sheet. Additionally, a balance sheet does not list all financial transactions; it only presents a summary of balances as of a specific date. Outlining upcoming financial goals is typically addressed in strategic planning documents rather than formal financial statements like the balance sheet.