What is a balance sheet and how is it structured?

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A balance sheet is a snapshot of a business’s financial position at a specific moment, showing what it owns (assets), what it owes (liabilities), and the owner’s claim on those assets (owner’s equity). The fundamental rule, the accounting equation, is assets = liabilities + owner’s equity, which is why the balance sheet balances. Assets are listed first and are typically grouped into current assets (like cash, accounts receivable, inventory) and non‑current assets (like property and equipment). Liabilities are split into current liabilities (due within a year) and long‑term liabilities. Owner’s equity reflects the owner’s stake, including contributed capital and retained earnings. This structure helps evaluate liquidity, solvency, and how the business is financed. Other options describe different financial tools: a cash flow statement shows cash movements; a projection estimates future profits; liquidity ratios are calculations derived from the balance sheet but do not define the balance sheet itself.