The balance sheet shows the difference between which two financial categories?

The balance sheet is a key financial statement that provides a snapshot of a company's financial position at a specific point in time. It fundamentally reflects the accounting equation: Assets = Liabilities + Equity. The correct answer highlights that the balance sheet demonstrates the relationship between assets and liabilities.

Assets represent what the company owns, such as cash, inventory, buildings, and equipment. Liabilities, on the other hand, represent what the company owes to others, including loans, accounts payable, and other obligations. By showing the balance between these two categories, the balance sheet helps stakeholders understand the financial health of an organization, particularly the company’s ability to cover its liabilities with its assets.

Understanding this relationship is essential for assessing the overall solvency and financial stability of a business, which directly affects its operational capabilities, investment opportunities, and long-term success. The other options misplace the focus of the balance sheet with respect to its primary components, as they involve revenues and expenses that are tracked primarily through the income statement rather than the balance sheet.