Which is the best description of a balance sheet?(1 point)
Responses
a statement that balances assets to liabilities and equity
a statement that balances assets to liabilities and equity
a list of outstanding debt compared to revenue
a list of outstanding debt compared to revenue
a comparison of revenue to SG&A and COGS
a comparison of revenue to SG&A and COGS
a statement listing retained earnings
a statement that balances assets to liabilities and equity
The best description of a balance sheet is:
A statement that balances assets to liabilities and equity.
The best description of a balance sheet is: "a statement that balances assets to liabilities and equity." To understand this better, let's break it down:
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It shows what the company owns (assets), what it owes (liabilities), and the difference between the two (equity).
The term "balances" in the description refers to the fundamental principle of accounting called the accounting equation: Assets = Liabilities + Equity. A balance sheet is structured in a way that ensures this equation remains balanced.
Assets are the resources owned by a company, such as cash, inventory, property, or equipment. Liabilities represent the company's debts or obligations, such as loans, accounts payable, or accrued expenses. Equity is the residual interest in the company's assets after deducting liabilities, often consisting of retained earnings and shareholder's equity.
Therefore, when you see the description "a statement that balances assets to liabilities and equity," it means the balance sheet provides an overview of a company's assets, liabilities, and equity in a way that ensures that the accounting equation is satisfied.