What is a balance sheet?

• A. A snapshot of income and expenses over a year.
• B. A record of all transactions.
• C. A snapshot of assets, liabilities, and net worth on a particular date.
• D. A list of financial goals.

Answer: (C)

A balance sheet shows your financial position at a specific date by listing what you own (assets), what you owe (liabilities), and your net worth (assets minus liabilities). It’s a snapshot in time, not a flow of income or expenses. This differs from an income statement, which tracks performance over a period, and from a transaction ledger, which records individual entries. The balance sheet helps you assess solvency and liquidity by showing how changes in assets and debts affect your net worth. For example, you might have cash, investments, and property as assets, loans and credit card balances as liabilities, and the difference between the two as your net worth.