What does a balance sheet illustrate?

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It illustrates the relationship between assets, liabilities, and equity, allowing stakeholders to assess what the company owns and owes.

The assets section lists everything the company owns, which can include cash, inventory, property, and equipment. Liabilities detail what the company owes to others, such as loans and accounts payable. The equity section represents the owners’ claim on the assets after all liabilities have been settled. This structure is fundamental, as it follows the accounting equation: Assets = Liabilities + Equity. By presenting this information together, the balance sheet effectively shows the net worth of the company at a single moment, making it a critical tool in financial analysis and decision-making.

In contrast, a company's revenue over time relates to its income statement, which tracks performance over a period rather than at a single point. Ownership and profit distribution references aspects of a business’s operations or shareholder agreements but is not a representation found on a balance sheet. Lastly, while the balance sheet can provide some insight into the market value of a company, it does not directly illustrate market value as this is assessed through other means, such as stock price and market capitalization.