A balance sheet is a financial statement of accounts which shows the financial position of the business and is prepared at the end of the year. The major components of balance sheet are: assets, liabilities and owner’s equity.
Income statement is also known as profit or loss account is the report of income, expenses and the profit or loss during the accounting period. The period of time that the statement covers is chosen by the business and will vary.
|Basis||Balance sheet||Income statement|
|Definition||A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period.
|An accounting of income and expenses that indicates a firm’s net profit or loss over a certain period of time, usually one year.
|Objectives/Purpose||The purpose of company financial statements is to evaluate the financial position (balance sheet), profitability (income statement), and cash flow (cash flow statement) of an entity. The balance sheet is the foundation of the entity.||The income statement serves several important purposes:
|Synonyms||Annual report, assets and liabilities, report, ledger and budget||Operating statement, earnings report, statement, profit and loss statement|
|Types||Its types are:
||Its types are:
|Time horizon||State of finances at a snapshot in time.||Changes to finance over a particular period.|
|Main function||The main function which is served by the balance sheet is that it provides the information about the liquidity position of the firm.||The main function of income statement is to list all revenue and expense accounts organized into different groups based on the types of revenues and expenses.|
|Limitations||Its limitations are:
assets being recorded at historical cost
use of estimates
omission of valuable non-monetary assets
|It has several limitations:
Items that might be relevant but cannot be reliably measured are not reported (e.g., brand recognition and loyalty)
|Included information||It includes assets, liabilities, shareholders equity.||It includes sales, expenses, and earnings per share.|
|Known as||It is also known as Statement of financial position.||It is also known as profit loss account; profit loss statement (P&L); revenue statement; statement of financial performance; earnings statement; operating statement; statement of operations.|
|Advantages/Benefits||Its advantages are:
||Its advantages are:
|Disadvantages||Its disadvantages are:
||Its disadvantages are:
|Example in Sentence||