What is the primary purpose of a balance sheet in accounting?

The primary purpose of a balance sheet in accounting is to provide a statement showing solvency. A balance sheet presents a snapshot of an organization’s financial position at a specific point in time, detailing the assets, liabilities, and equity. This allows stakeholders, including management, investors, and creditors, to assess whether the organization has enough assets to cover its liabilities, thus indicating its solvency.

By comparing total assets to total liabilities, one can determine if the organization is in a strong financial position or if it may struggle to meet its obligations. This information is crucial for decision-making and strategic planning.

In contrast, the other options don't align with the primary function of a balance sheet. While revenue and expenses appear in income statements, cash flow analysis is part of cash flow statements, and short-term liabilities alone do not capture the full picture of financial stability, as they are only one component of the overall financial position reflected by the balance sheet.