What is the primary purpose of a balance sheet?

The primary purpose of a balance sheet is to provide a snapshot of a company's financial position at a specific point in time. It details the company’s assets, liabilities, and equity, allowing users to assess what the company owns and owes. This information is critical for stakeholders, including investors and creditors, who need to understand the company's financial health and its ability to meet obligations.

In contrast, while reporting cash flows is essential for understanding liquidity, this function is fulfilled by the cash flow statement rather than the balance sheet. Similarly, the income statement focuses on profitability by detailing revenues and expenses over a period, which is not the objective of the balance sheet. Lastly, daily transactions are recorded in journals and ledgers, not directly in the balance sheet, as the balance sheet aggregates the overall financial status rather than tracking individual transactions.