Utah Contractor Practice Exam

What does a balance sheet show?

1. Liability only

2. Assets only

3. Net profit and sales only

4. Liabilities, assets, and net worth

The correct answer is: Liabilities, assets, and net worth

A balance sheet is a fundamental financial statement that provides a snapshot of a company’s financial position at a specific point in time. It showcases three critical components: assets, liabilities, and net worth (or equity). Assets represent everything the company owns, such as cash, inventory, property, and equipment. Liabilities reflect the obligations the company owes, including loans, accounts payable, and other debts. The net worth is calculated by subtracting total liabilities from total assets, representing the owner's equity in the company. This comprehensive view allows stakeholders to assess the financial stability of the business, understand what it owns versus what it owes, and determine the overall value of the business. The other options do not encapsulate the complete picture provided by a balance sheet. Focusing solely on liabilities or assets ignores half of the financial equation, while mentioning only net profit and sales fails to address the overall financial position, as profit and sales figures would typically be more relevant to an income statement instead of a balance sheet. Thus, the answer that includes liabilities, assets, and net worth truly reflects what a balance sheet presents.