What is The Purpose of Balance Sheet

The Main or Primary Purpose of Balance Sheet is to show the financial position of a business’ assets, liabilities and equity on a particular time of a specified date. It is actually a statement of verification of Accounting Equation that is written as shown below:

Assets = Liabilities + Equity

The purpose of balance sheet is to show the total resources (Total Assets) owned by the business during a particular time that are acquired either by Internal Liability (Owner’s Equity or Capital or Equity) or by External Liability (Outsiders) of the business. It also shows how much resources are obtained either by the business’ owners or outsiders. If these are provided more than Debt Financing rather than Equity Financing, then it is not good signs as most of the resources of the business are in debt which represent the rights of outsiders and the company is liable to pay. But if the company fails to pay, then the business will close down while equity financing are the rights of owners of the business and if they are honest and sincere, then the business will not shut down and continue as they can control the business as compare to the Outsiders.