Balance sheets and income statements are components of the monetary declaration of a firm for the perusal of every stakeholder. However, the balance sheet and income statement possess likenesses and differences. They are used side by side by individuals who wish to know the monetary well-being of the firm for acquisition intentions. Many individuals think they are the same; however, this article will highlight the difference between these two financial declarations to resolve these suspicions.
What is Balance Sheet?
A balance sheet can also be described as a statement of financial position; a balance sheet exhibits the present monetary status of the firm and is a crucial aspect of the financial statement. It has to do with all the acquisitions and drawbacks of a firm in a sequential decree which implies that the extensively liquid additions are mentioned first. In contrast, the broadly pressing sentiments are discussed first before the smaller ones. It is also a sheet of paper that mirrors the solvency of a firm. However, a balance sheet’s three most essential components include acquisitions, liabilities, and equity.
Acquisition
These are monetary resources a firm possesses as an outcome of its previous marketings. This acquisition summarizes cash flow into the firm that can be utilized for business intentions. Some instances of the acquisition involve cash, furniture, machinery, plants, accounts receivable, marketable protections, copyright, and patents.
Drawbacks
These are described as the contrary of acquisitions. They are responsibilities of the firm that finally leads to a money flow. Some drawbacks include notes and bonds payable, interest payable to lenders, income tax, warranty liability, and bonuses payable.
Equity
This is the aspect of the acquisition that the owner asserts. This is the net outcome of acquisitions after every impediment has been sorted. Instances of equity have to do with finance, common and appreciation share capital, appropriated and unappropriated retained incomes, etc.
What is Income Statement?
An income statement is also called a profit and loss or comprehensive income statement. It is a monetary declaration that reflects the total performance of a firm for a particular duration of time. It consists of every earnings and loss of a firm to result in net gain or loss. The revenue and the firm’s cost are two primary elements of any income statement.
Income
This is described as an elevation of monetary gains in a provided duration of time in the inflow of investments or a reduction in drawbacks. All earnings and benefits are categorized in the revenue head of income statements.
Cost
This is the reduction in monetary gains in the method of funds outflow or an elevation in the impediments of the firm. Some instances of cost have to do with sales expenses, sales promotion, advertising costs, income tax costs, stationery and postage costs, and more.
Difference Between Balance Sheet and Income Statement
- Income statements and balance sheets are vital aspects of an entire set of monetary declarations.
- The income statement portrays the current year’s activities of the firm. The balance sheet consists of information from the beginning of the business till the financial year ends.
- The income statement informs present earnings and loss, while the balance sheet shows the monetary well-being of the firm, announcing its total investments and drawbacks.
