What is the Purpose of a Balance Sheet?

purpose of balance sheet

The purpose of a balance sheet is to show a snapshot of the financials of a business on a particular date.  The balance sheet provides information of what is owed to the business as well as what it owes to creditors allowing the user to assess financial health.

Example of a Balance Sheet

balance sheet purpose

The Balance Sheet of Example Accounts Limited shows that the business has sufficient current assets to pay its current liabilities. We can also see that the profit and loss account has increased between 2016 and 2017 indicating that the business made a profit between these two years.  All really positive indicators about the business for investors, lenders or potential credit accounts.

The purpose of a balance differs according to the person looking at it but it gives all users a picture of financial health.

4 ways to strengthen your balance sheet