Balance Sheet vs. Income Statement

Balance Sheet vs. Income Statement

The balance sheet and income statement are both important financial statements that detail the financial accounting of a company. The balance sheet details a company's assets and liabilities at a certain period of time, while the income statement details income and expenses over a period of time (usually one year).

A balance sheet is comprised of three items, assets, liabilities and owners equity. It details the financial health of company at one point in time, rather than over a period of time. A company's assets must equal liabilities and owners equity. A balance sheet is used to determine a company's current financial situation, in order to make important financial decisions.

An income statement is comprised of a business's income and expenses over a period of time. This period is usually a year, or annually, but can also be monthly or quarterly. Revenues are recorded as credits, and expenses as debits. The income statement is often referred to as the profit and loss statement (P&L). An income statement can be run at any time during the fiscal year to determine profitability.

An income statement is used to determine whether a company is showing net income or not. If revenues and income are larger than expenses and losses, the company will show a net profit, or earnings, and is therefore profitable. Conversely, if revenues and income are less than expenses and losses, the company is operating at a net loss, and is not profitable.

The balance sheet is often much more detailed than the income statement, as it requires a full inventory of every asset and liability a company has on its books at any given time. The income statement lists revenue and expenses for a given period of time, but at the end of the reporting period, those accounts are zeroed out.

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