An Income statement and The balance sheet | Major differences to known
The businesses have three financial statements that show business activities, revenue and expenses for an accounting period. The businesses maintain three financial statements which are named cash flow statement, Balance sheet and income statement. A cash flow statement reflects cash activities, the income statement shows profit and loss in the statement and the Balance sheet reflect how assets and liabilities are used. Difference between an income statement and the balance sheet is discussed below but the difference between an income statement and balance sheet and cash flow are so important to know as well as the income statement and balance sheet examples and balance sheet and income statement relationships are also important to linking up to put together.
The differences between an Income statement and Balance sheet:
The financial statement users such as organization Management, lender, investor, Financial statement Auditor and so on. There are many differences between the balance sheet and income statement which is given below as following points;
- Timing: The income statement reflects the results of income and expenses at pried of time. On the other hand, the Balance sheet shows the position of the financial situation as a specific date. For example, financial statements prepared as at December will consist of the balance sheet as at December 31st and the income statement shoes for the whole month reflection which is indicated at the end of the month.
- Items reported: The income statement reveals the items expenses and revenue which is representing profit and loss of the end of the month or period, while balance sheet represents assets, liability and equity of the financial position at the period of time.
- Metrics: The income statement represents subtotals of gross margin percentage, operating income percentage and net income percentage. On the other hand, Balance sheet compared from different items such as assets, liability and owners equity to determine the business financial position.
- Users for decision: The income statement is used to examine the results and find any kinds of financial issues that need to be the correction. Similarly, the balance sheet is used by the top management to determine whether a business adequate financial liquidity to meet any kinds of obligations of the business.
- Creditors and lenders: In income statement lender and creditor decide whether the business generating sufficient profit to pay off liabilities its creditor or lenders. Eventually, Balance sheet users are determining to the business financial position and ration assets to liability. They just want to know whether assets meet up the liability of the business. If so they can provide more credit to the entity.
- Investor: Income statement profit and loss guided to an investor to determine the position of the organization, while Balance sheet assets and liabilities determine the financial position whether its profitable to invest or not.
- Relatively importance: The relative importance means the two reports vary by the reader or users income statement is more importance rather than the balance sheet and the income statement reports show the results of the entity.
The income statement requires some calculation which is regular needed. Add up all expenses and revenue and adjust the adjustment of items and then deduct the revenue to expenses and calculate profit or losses statement. Similarly, In Balance sheet assets and liabilities requires adjustment of the items and when all added then calculate two sides to be equal. The total amount of two sides indicates the balance is equaled and the financial position is all right to use of its users. It is so important for financial statements is kept as accounting rules.