Question

The correct definition of a balance sheet includes which of the following statements? (Check all that apply.)

1. The statement explains the changes in equity over a period of time.
2. The statement reports the financial position of a company at a point in time.
3. The statement reports the equality of the accounting equation at any point in time.
4. The statement reports revenues and expenses over a period of time.
5. The statement reports assets, liabilities and equity at a point in time.

Answer 1

The correct statements defining a balance sheet are 2, 3, and 5. Statement 2 indicates that it reflects a company's financial position at a point in time, statement 3 ensures the balance sheet demonstrates the equality of the accounting equation, and statement 5 lists the company's assets, liabilities, and equity.

Step-by-step explanation:

The correct definitions of a balance sheet that apply are 2, 3, and 5. Let's clarify each point:

• Statement 2: A balance sheet reports the financial position of a company at a specific point in time.
• Statement 3: The balance sheet showcases the equality of the accounting equation (Assets = Liabilities + Equity) at any given moment.
• Statement 5: It itemizes a company's assets, liabilities, and equity at a particular point in time.

Statement 1 is incorrect because it describes the function of the statement of changes in equity, not the balance sheet. Statement 4 is incorrect as it refers to the income statement which reports revenues and expenses over a period of time, rather than the balance sheet.

The balance sheet is a critical financial statement in accounting that serves as a snapshot of a company's financial health. It lists the company's assets, anything of value owned by the company, and liabilities, which are the company's debts. The difference between the two is known as net worth or equity, which represents the owner's claim on the assets after all debts have been paid.