The correct answer is: A. A and R both are correct and R is correct explanation of A.
A balance sheet is a financial statement that reports a company’s assets, liabilities, and equity at a specific point in time. It is a snapshot of the company’s financial position, and it is used to assess the company’s liquidity, solvency, and financial health.
The liquidity position of a business is its ability to meet its short-term obligations. A company with a high liquidity position is able to easily meet its short-term obligations, while a company with a low liquidity position may have difficulty meeting its short-term obligations.
The balance sheet is prepared on the basis of actual transactions that are recorded in the books of accounts. This means that the balance sheet reflects the company’s actual financial position, and it is not based on estimates or projections.
Therefore, A and R both are correct and R is correct explanation of A.