What does a balance sheet display?

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It is structured to include three main components: assets, liabilities, and equity.

Assets represent everything the business owns, such as cash, inventory, and property. Liabilities encompass all the debts and obligations the company owes to outside parties, like loans and accounts payable. Equity reflects the owner's interest in the company, which is calculated as the difference between total assets and total liabilities.

This structure is crucial because it helps stakeholders—such as investors, creditors, and management—assess the company's financial stability and liquidity. By presenting this information at a single point in time, the balance sheet allows for an immediate understanding of the company's financial health, as opposed to assessing performance over a period—as would be done with an income statement, which tracks revenue and expenses. Consequently, the balance sheet ensures a comprehensive view of how a company is financed, aiding in decisions regarding its financial future.