Balance Sheet vs. Income Statement: What's the Difference?
Edited by Aimie Carlson || By Janet White || Published on November 12, 2023
Balance Sheet shows a company's assets, liabilities, and equity at a specific point in time, while an Income Statement displays revenues, expenses, and net income over a period of time.
Key Differences
The Balance Sheet provides a snapshot of what a company owns (assets) and owes (liabilities), along with its equity at a particular moment in time. This statement represents the financial position of a business on a specific date.
In contrast, an Income Statement, sometimes called a Profit and Loss statement, presents the financial performance of a company over a period, typically a month, quarter, or year. It details the revenues earned and the expenses incurred, resulting in either a profit or a loss. While the Balance Sheet is about the present moment, the Income Statement focuses on the financial activities that occurred during a particular period. A Balance Sheet is analogous to a photograph, capturing a single moment, whereas an Income Statement is more like a video, showing the flow of transactions over time.
Both the Balance Sheet and the Income Statement are crucial for stakeholders to gauge the financial health and performance of a business. They are interrelated; the results from the Income Statement can influence the figures on the Balance Sheet and vice versa.
Comparison Chart
Nature
Snapshot at a specific date.
Performance over a period of time.
Components
Assets, Liabilities, and Equity.
Revenues, Expenses, and Net Income.
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Purpose
Shows financial position.
Shows financial performance.
Time Frame
Single point in time.
Duration (e.g., month or year).
Outcome
Net worth or equity of the company.
Profit or loss for the period.
Balance Sheet and Income Statement Definitions
Balance Sheet
Balance Sheet provides a snapshot of a firm's financial health on a particular date.
The Balance Sheet for December 31st demonstrated a rise in shareholder's equity.
Income Statement
Income Statement delineates the flow of funds into (revenues) and out (expenses) of a business, portraying its financial operations.
The Income Statement's details allowed the board to strategize better for the next fiscal year.
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Balance Sheet
Balance Sheet is the financial statement that equates a company's assets with its liabilities and equity.
The Balance Sheet helps stakeholders determine if the business has sufficient assets to cover its debts.
Income Statement
Income Statement showcases how much a business earned and spent, resulting in net income or a net loss.
The annual Income Statement displayed a net income, indicating a successful year for the company.
Balance Sheet
Balance Sheet is a financial statement showing a company's assets, liabilities, and equity at a specific point in time.
At the end of the year, the company's Balance Sheet revealed an increase in assets.
Income Statement
Income Statement is a financial report outlining a company's revenues, expenses, and profits or losses over a period.
The Income Statement for the last quarter revealed higher-than-expected profits.
Balance Sheet
Balance Sheet represents the resources a business owns and its financial obligations.
By examining the Balance Sheet, the investors could ascertain the company's debt load.
Income Statement
Income Statement provides insight into a company's operational performance by detailing its earnings and expenditures.
Through the Income Statement, it was evident that sales increased while costs remained stable.
Balance Sheet
Balance Sheet is a tool that illustrates the distribution of a firm's resources and obligations.
The CFO presented the Balance Sheet to showcase the company's strong financial position.
Income Statement
Income Statement is the financial document highlighting a firm's profitability over a set duration.
Stakeholders reviewed the Income Statement to gauge the return on their investments.
FAQs
What is the main purpose of a Balance Sheet?
The Balance Sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.
Which statement shows a company's profitability?
The Income Statement shows a company's profitability, detailing revenues and expenses.
Can a Balance Sheet help in assessing a company's debt?
Yes, a Balance Sheet lists a company's liabilities, which includes its debts.
Why are both Balance Sheet and Income Statement essential for investors?
Both provide critical insights into a company's financial health, helping investors make informed decisions.
If a company is profitable, will it always have a positive net worth on its Balance Sheet?
Not necessarily. Profitability (from the Income Statement) doesn't guarantee positive net worth, as a Balance Sheet also considers liabilities.
What's the primary difference between a Balance Sheet and an Income Statement?
The Balance Sheet shows a company's financial position at a moment in time, while the Income Statement reflects its financial performance over a period.
If a company buys machinery, where is this reflected?
It's reflected as an asset on the Balance Sheet.
Can an Income Statement provide information about a company's debts?
No, debts are listed as liabilities on the Balance Sheet.
How often is an Income Statement typically prepared?
An Income Statement is usually prepared monthly, quarterly, and annually.
Does the Balance Sheet show company revenue?
No, revenues are presented on the Income Statement. The Balance Sheet focuses on assets, liabilities, and equity.
Do both Balance Sheet and Income Statement need to be audited?
Yes, in many jurisdictions, both statements are audited, especially for publicly traded companies.
How do dividends paid affect the Balance Sheet and Income Statement?
Dividends reduce retained earnings on the Balance Sheet and are also shown as an appropriation on the Income Statement.
Where can I find information about a company's sales on these statements?
Sales or revenue information is provided on the Income Statement.
Are depreciation expenses shown on the Balance Sheet?
No, depreciation expenses are on the Income Statement, but the accumulated depreciation affects asset values on the Balance Sheet.
What is the connection between the ending Balance Sheet of one year and the starting Balance Sheet of the next year?
The ending Balance Sheet of one year becomes the starting Balance Sheet for the next year.
Can the Income Statement show a profit even if the Balance Sheet reveals more liabilities than assets?
Yes, it's possible if the company had a profitable period but has accumulated more liabilities over its lifetime.
How can a negative net income on the Income Statement affect the Balance Sheet?
A negative net income decreases retained earnings on the Balance Sheet.
How are retained earnings on the Balance Sheet affected by the Income Statement?
Retained earnings on the Balance Sheet increase with net income and decrease with net loss from the Income Statement.
Which statement would provide information about a company's operating expenses?
The Income Statement lists operating expenses.
Do both the Balance Sheet and Income Statement follow the double-entry bookkeeping system?
Yes, both statements are based on the double-entry system, ensuring assets equal liabilities plus equity.
About Author
Written by
Janet WhiteJanet White has been an esteemed writer and blogger for Difference Wiki. Holding a Master's degree in Science and Medical Journalism from the prestigious Boston University, she has consistently demonstrated her expertise and passion for her field. When she's not immersed in her work, Janet relishes her time exercising, delving into a good book, and cherishing moments with friends and family.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
