What is the primary function of a balance sheet?

The primary function of a balance sheet is to provide a snapshot of an organization's financial position at a specific date. This financial statement presents a detailed view of the company's assets, liabilities, and shareholders' equity, allowing stakeholders to assess the company's financial health at that moment in time.

Balance sheets are instrumental in understanding the resources the company owns (assets) and how those resources are financed (liabilities and equity). By summarizing this information, the balance sheet helps investors, creditors, and management make informed decisions based on the company's current financial status, which is critical for evaluating liquidity, solvency, and overall financial stability.

In contrast, other options focus on aspects that are not the primary purpose of a balance sheet. Profitability over a period is typically captured in an income statement. Cash inflows and outflows are primarily reflected in the cash flow statement. Finally, a comparison of sales versus expenses is also typically discussed within the context of the income statement rather than the balance sheet. Therefore, these alternatives do not align with the fundamental role of a balance sheet.