What is a balance sheet used for?

A balance sheet is a crucial financial statement that provides a snapshot of a company's financial position at a specific point in time. It does this by detailing the company's assets, liabilities, and equity, which together give a clear view of what the company owns, what it owes, and the residual interest of the owners (shareholders) in the company.

The assets section includes everything the company owns that has economic value, such as cash, inventory, and property. The liabilities section lists what the company owes to creditors, which includes loans and accounts payable. Finally, equity represents the owners' stake in the company, calculated as the difference between total assets and total liabilities. When stakeholders look at the balance sheet, they can quickly assess the company's financial health, solvency, and capital structure.

The other options describe different financial statements or aspects of accounting. For instance, sales revenue pertains to an income statement that tracks income over a period, while cash inflows and outflows relate to the cash flow statement, revealing how cash is generated and spent over time. Summarizing the financial position over a year again aligns with income statements or comprehensive financial reports, rather than the static status provided by a balance sheet.