What is the primary function of a balance sheet?

The primary function of a balance sheet is to summarize a company's assets, liabilities, and equity at a specific point in time. This financial statement provides a snapshot of what the company owns (assets), what it owes (liabilities), and the residual interest of its owners (equity) at that moment.

Understanding this is critical for stakeholders, as it reflects the company's financial position and helps assess its stability and liquidity. Investors, creditors, and management use this information to make informed decisions, such as evaluating creditworthiness or investment opportunities.

In contrast, the other options focus on different aspects of financial reporting. Profitability is assessed through the income statement, which details performance over a period and measures revenues and expenses. Cash inflows and outflows are tracked through the cash flow statement, which indicates how cash is generated and spent in operational, investing, and financing activities. Budget forecasts, while important for planning and strategy, do not form part of the balance sheet's function, as they involve estimating future financial performance rather than presenting historical financial data.