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Balance Sheet vs. Income Statement

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Last editedApr 20222 min read

Small business accounting requires that business owners maintain accurate records of all transactions. Two of the most important documents are the balance sheet and income statement, which are used not only for internal accounting and tax reporting purposes but also serve as useful indicators of financial health for investors. If you’re new to accounting, you might be wondering – is a balance sheet the same as an income statement? If not, what’s the difference?

Is a balance sheet the same as an income statement?

There are several attributes that balance sheets and income statements share. Both are major financial statements, along with the cash flow statement. Both documents also offer a snapshot of a business’s financial health, used by creditors and investors to assess a company.

Apart from these similarities, the balance sheet and income statement difference boils down to their purpose. The balance sheet offers an overview of a company’s assets and liabilities, while the income statement looks at company performance over time.

What is a balance sheet?

The balance sheet shows a snapshot of a company’s financial position at one specific moment in time. At the time of recording, it shows exactly what the company owns in assets as well as what it owes in liabilities. This gives an idea of the business’s net worth on that day, as well as how well it would be able to cover expenses.

What is an income statement?

When looking at what’s on a balance sheet and income statement you’ll notice different values. You’ll see assets and liabilities listed on a balance sheet. However, theincome statement (or profit and loss statement) is meant to show revenue, sales, and expenses throughout an accounting period. If the business is operating at a profit, the revenues should outweigh the expenses during this period.

What goes on a balance sheet vs. income statement?

View a sample balance sheet and income statement and you’ll see different figures listed. So, what goes on a balance sheet vs. income statement?

A balance sheet shows:

  • Assets including cash, inventory, property, and intangible assets like trademarks. These are usually listed in order of liquidity. That means that the assets which can be easily converted into cash are listed at the top of the balance sheet.

  • Liabilities including the company’s outstanding financial debts and obligations, such as accounts payable, wages, loans, and taxes.

  • Equity includes the amount of money invested in the company as well as any retained earnings.

These are used to calculate the accounting equation.

Assets = Liabilities + Equity

When the balance sheet is “balanced,” the company’s liabilities and equity should equal its assets.

By contrast, an income statement will show figures related to the business’s revenues and expenses. This includes:

  • Operating expenses

  • Net income or loss

  • Revenue

  • Cost of goods sold

Ideally, the revenues and sales will outweigh the expenses if a business has done well during that accounting period.

Key balance sheet and income statement differences

To summarize the balance sheet and income statement difference, there are several categories to consider.

  • Performance: Only the income statement shows performance.

  • Timing: The income statement covers a full accounting period, while the balance sheet shows one snapshot on that day.

  • Usage: The income statement is used to determine the company’s performance, while the balance sheet shows whether a company can cover its financial obligations with its current assets.

  • Reported figures: The income statement reports revenue and expenses, while the balance sheet reports assets, liabilities, and equity.

Along with the cash flow statement, the balance sheet and income statement are both vital components of your small business accounting process. You’ll need to keep accurate records in order to obtain credit, attract investors, and file taxes. As your business grows, you’ll become increasingly familiar with both documents and their importance.

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