Oregon Construction Contractors (CCB) Practice Test

What does a balance sheet report?

1. Only assets at the end of the year

2. Assets, liabilities, and owner's equity

3. Revenue and expenses for the year

4. Bank statements and debts

The correct answer is: Assets, liabilities, and owner's equity

A balance sheet is a crucial financial statement that provides a snapshot of a business's financial position at a specific point in time. It reports three main components: assets, liabilities, and owner's equity. Assets represent what the company owns, including cash, inventory, property, and equipment. Liabilities reflect what the company owes to outside parties, such as loans, accounts payable, and other debts. Owner's equity represents the owners' claim on the assets of the business, which can include investments made by the owners and retained earnings. The balance sheet adheres to the accounting equation: Assets = Liabilities + Owner's Equity. This equation underscores the relationship between these financial elements, ensuring that the balance sheet is balanced. When stakeholders review a balance sheet, they can assess the company's financial health, liquidity, and capital structure based on this information. Other options do not accurately capture the comprehensive nature of a balance sheet. It does not solely focus on assets, as in the first choice, nor does it report income or expenditures like revenue and expenses, which are covered in an income statement. Additionally, bank statements and debts, while relevant to financial discussions, do not represent the holistic view provided by a balance sheet. Therefore, the correct answer highlights the essential