What is a balance sheet?

A balance sheet is fundamentally a financial statement that presents a company's financial position at a specific point in time. It provides a detailed snapshot by listing total assets, total liabilities, and equity, thus giving stakeholders visibility into what the company owns and owes, as well as the residual interest of the owners in the company.

The structure of a balance sheet follows the accounting equation: Assets = Liabilities + Equity. This fundamental equation highlights that what the company owns (assets) is financed either by borrowing (liabilities) or by the owners' investment (equity).

Understanding this distinction is crucial because it separates the balance sheet from other financial statements. For instance, cash inflows and outflows are tracked over time in the statement of cash flows, while revenues and expenses over a period are reported in the income statement. The option that discusses outlining company policies and procedures is unrelated to financial accounting and does not pertain to the representation of financial status. Therefore, identifying option B as the correct answer helps in grasping one of the core components of financial accounting and the utility of the balance sheet in assessing business health and stability.