What is the difference between a balance sheet and an income statement?

@aidan.jacobs 

A balance sheet and an income statement are both financial statements that provide information about a company's financial performance and position. However, there are key differences between the two:

1. Purpose and Timing of Information:

• Balance Sheet: It provides a snapshot of a company's financial position at a specific point in time, typically at the end of a reporting period. It shows the company's assets, liabilities, and shareholders' equity.
• Income Statement: It provides information about a company's financial performance over a specific period, such as a quarter or a year. It shows the company's revenue, expenses, and net income or loss.

1. Content:

• Balance Sheet: It includes assets (such as cash, inventory, equipment, and investments), liabilities (such as loans, accounts payable, and accrued expenses), and shareholders' equity (common stock, retained earnings) at a specific point in time.
• Income Statement: It includes revenue (such as sales, services income), expenses (such as cost of goods sold, salaries, rent, utilities), and net income or loss over a specific period.

1. Time Perspective:

• Balance Sheet: It represents the company's financial position at a specific point in time, helping to assess its liquidity, solvency, and financial stability.
• Income Statement: It represents the company's financial performance over a specific period, allowing analysis of revenue generation, expense management, and profitability.

1. Interrelationship:

• Balance Sheet: It reflects the cumulative effect of all past and current income statement activities on the company's financial position.
• Income Statement: It contributes to changes in the balance sheet, as net income or loss affects retained earnings, which is a component of shareholders' equity on the balance sheet.

In summary, while a balance sheet reflects a company's financial position at a specific point in time, an income statement provides information about its financial performance over a specified period.