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Balance sheet and income statement are part of the
financial statements of a company for the perusal of all the stakeholders.
Though both, income statement and balance sheet, have similarities as well
as differences, they are used side by side by those who are desirous of
understanding the financial health of the company for investment purposes. Many
feel that they are same but this article will highlight the differences between
these two financial statements to remove these doubts.

What is Balance Sheet?

Also referred to as a statement of financial
position, balance sheet shows the current financial position of the
company and is an integral part of the financial statements. It includes all
the assets and liabilities of a company in a sequential order which means that
the most liquid assets are listed first and the most pressing liabilities are
first before smaller ones. It is also a sheet of papers that reflects the
solvency of a company. The three most important elements of a balance sheet
thus are assets, liabilities and equity.

Assets are financial resources a
company has as a result of its past transactions. These assets translate into
cash flow into the company that can be used for business purposes. Some
examples of assets are cash, plant and machinery, furniture, marketable
securities, patents, copyrights and account receivables.

Liabilities are the opposite of
assets and are obligations of the company that eventually result in a cash
outflow. Some examples of liabilities are notes and bonds payable, income tax,
interest payable to lenders, dividends payable and warranty liability.

Equity is that part of the assets that
are claimed by the owner. It is the net result of assets after all liabilities
have been met. Examples of equity are capital, ordinary and preference share
capital, appropriated and unappropriated retained earnings etc.

What is Income Statement?

Also called the profit and loss statement or
comprehensive income statement is a financial statement that reflects the
overall performance of a company during a specified period of time. It contains
all profits and losses of the company to come up with net profit or loss. Two
major components of any income statement are the income and the expense of the

Income is defined as increase of
economic benefits in a given period of time in the form of inflow of assets or
a decrease in liability. All revenues and gains are classified in the income
head of a income statement.

Expense, on the other hand are a
decrease in economic benefits in the form of cash outflow or an increase in the
liabilities of the company. Some examples of expenses are cost of sales, sale
promotion, advertising expenses, income tax expense, stationary and potage
expense etc.

Balance Sheet vs Income Statement

Both income statement as well as balance sheet are integral parts of a
complete set of financial statements.

While income statement reflects current year’s performance of the company,
balance sheet contains information from the start of the business up to the
financial year ended

Income statement tells current profit and loss whereas balance sheet reflects
the financial health of the company telling its overall assets and

2 Reply on Tue 2 Aug 2011 - 9:30


CSoC Smart User
CSoC Smart User
Thank you.Its Helpful


thank you

Preetpal Singh

CSoC Well-Wisher
CSoC Well-Wisher
Nice Cool

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