There are many ways the balance sheet and income statement differ but a few key differences are:
- Time period of reporting: Income statements report financial activity for a specific reporting period whereas the balance sheet reports financial activity at a specific point in time.
- Type of Information reported: The income statement shows the business’s revenues and expenses and ultimately the amount of profit or loss it generated and the balance sheet reports on a company’s assets, liabilities and equity.
- Significance: The income statement is used to report the overall results of the business’s financial performance, or how much earnings it’s generating. The balance sheet is used to analyze whether a company has enough liquid assets to cover its financial obligations.
What is an income statement?
An income statement or profit and loss account is one of the financial statements a company requires to balance their accounting books and calculate the financial health of the company.
It shows the company’s revenues and expenses during a particular period, which can be selected according to the company’s needs. An income statement indicates how the revenues are transformed into the net income or net profit.
A quarterly income statement shows the profits or losses generated by your business over a three month period. It can also be referred to as a profit or loss account, and is a crucial financial statement that shows the businesses income and expenditures, detailing your net income or net profits.