The balance sheet is a statement that shows the assets, liabilities, and capital of a business at a specific date. It is prepared at the end of the accounting period after the trading and profit and loss account.

The need for preparing a balance sheet is multi-fold. First, it is essential to know the financial position of the business. It provides information about the nature and values of its assets and liabilities, which is true only on that date. Second, it aims to present a true and fair view of the financial position, which is one of the basic objectives of financial statements. Third, it portrays the accounting equation, as the totals of assets and liabilities are always equal.

Moreover, the balance sheet shows the balances of all ledger accounts that have not been closed or transferred to the profit and loss account. These include assets, liabilities, and capital, which are to be carried forward to the next year. Thus, it serves as a link between two accounting periods.

In summary, the balance sheet is a vital tool to assess the financial standing of a business and to ensure continuity of accounting records.