Difference Between Income Statement and Balance Sheet

In these modern times, investor confidence has to be present to assure the continuity of a stronger business. On the other end, the company itself needs to set the right corporate strategies so that its workforce will prioritize how the firm’s actions will transform into lasting profits. To give everyone a clearer picture of the company’s financial standing, business heads need to look into their financial statements like income statements and balance sheets on top of all other financial corporate information.

Also regarded as a financial position statement, the balance sheet is a detailed summary that highlights the company’s equity capital, total liabilities, and total assets.

The latter are considered as the firm’s resources that are utilized strategically so as to help expand the company and ward off upcoming times of financial crisis. Short-term assets include receivables and cash while long-term resources comprise the company’s equipment and real estate. Liabilities are the financial commitments that the company are indebted to or must meet at a particular period of time (i.e. payable bonds and salaries). Equity capital, otherwise known as net worth, is simply the remaining amount left from subtracting total liabilities from the total assets.

Balance sheets are important because they show how strong the business assets are. Knowing this, the investor’s confidence will most likely improve, and implementing new company strategies will be a lot easier with a stronger financial base.

Income statements are often abbreviated “P&L” to signify their alternate name “Statement of Profit & Loss.” This statement discloses the bulk of company expenditures, incomes, and revenues over a certain time frame (i.e. fiscal year, quarter). This report also details what markets are the company’s current strengths.

In a highly competitive playing field where gaining more money is always the talk of the day, certain companies announce positive reports and growth to lure more investors. The P&L is a good barometer for firms that are planning to expand as its participants will effectively be able to provide the resources needed to sustain the company for a prolonged period of time.

Overall, balance sheets and income statements are very much interrelated even though they are two distinct reports published periodically at certain critical dates.

In summary:

1.Balance sheets detail the summaries or totals.

2.Balance sheets show the value or amount of the company’s short-term and long-term assets and short- and long-term liabilities.

3.Balance sheets have a more overall view of the company’s financial standing from the start of the business year up to the current year.

4.The income statements detail the expenditures, revenues, and current year net loss or profits (income).

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