What does a balance sheet represent?

A balance sheet represents a record of an organization's financial position at a specific point in time, providing valuable insight into its assets, liabilities, and equity. This financial statement captures what the business owns (assets), what it owes (liabilities), and the remaining equity for the owners. It serves as a snapshot that helps stakeholders, including management, investors, and creditors, assess the company's financial health, making it critical for decision-making.

The construction of the balance sheet follows the fundamental accounting equation: Assets = Liabilities + Equity. This structure emphasizes the relationship between these financial elements and ensures that the sheet is balanced, which is key to its reliability in representing the company's financial situation.