The Income statement shows the revenue and expenses of a business for a specific period of time, usually 1 year. The Balance sheet shows all the assets( things the business owns) and libailities (amounts the business owes)of a business on a specific date

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Mar 24, 2009 18:17 EDT

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An Income Statement is a document that summarizes the sources of cash flowing into a business (revenue), and the sources of cash flowing out (expenses). The Income Statement can be expressed as an equation: Revenue – Expenses = Net Income (Loss). “(Loss)” is shown because if the Net Income is negative, it means there is a loss, and in accounting, negative numbers are often shown in parenthesis. The Income Statement is prepared to cover a specific accounting period – usually a month, a quarter, or a year. Income Statements are usually stated, “For the period ending … (date)”

A Balance Sheet, on the other hand, is a snapshot that indicates what the business owns (assets) and what it owes (liabilities). The Balance Sheet can also be expressed as an equation: Assets = Liabilities Net Equity, where Net Equity represents the owners’ share of the company – or the owners’ claim against the total assets.

The Income Statement and Balance Sheet are linked. The Net Income from the Income Statement posts to the Net Equity portion of the balance sheet. The income represents an increase in the owners’ claim against the assets. Net Income is not a cash asset in accounting practice. Together, these two linked documents provide the basic financial picture of a company.

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Dec 23, 2008 14:13 EDT

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