Balance Sheet and Income Statement (also called the Profit and Loss Statement or P&L) make up a company’s Financial Statements or simply Financials.
Both of these reports present the performance, health and narrative of a business. The key difference between these two is: Balance Sheet is always a point in time (usually the last day of the prior period that recently ended, such as Dec 31 of the last year) while Income Statement is always a period of time (usually the prior month, quarter, or year).
The Balance Sheet has two parts: One part is the Assets and the other is the combination of Liabilities and Owner’s Equity.
The easiest way to define these two parts is: Assets is what you own (for example, money in bank accounts, accounts receivables, notes receivables, fixed assets, intangible assets such as patents and trademarks) and Liabilities is what you owe (for example, accounts payables, notes and loans payables, payroll liabilities).
Income Statement is pretty straightforward: You have money-in from revenue, sales, income, or receipts (these are usually synonymous and interchangeable, with a few exceptions) and you have money-out from costs and expenses.
If you want your small business to grow, then you as the owner must mature as well. Understanding the difference between these two reports and knowing how to use the information within will be to your advantage.
- Thomas Kim from Tabular LLC