Balance Sheet vs Income Statement: Tabular Comparison with Examples
The difference between balance sheet and income statement is a core concept in accounting. These two financial statements are essential in school and competitive exams, as well as for understanding a company’s financial health. Learning their distinctions will help you answer exam questions confidently and make smarter business decisions in daily life.
| Basis of Difference | Balance Sheet | Income Statement |
|---|---|---|
| Timing | As on a specific date | For a particular period |
| Main Purpose | Shows assets, liabilities, and equity | Shows income and expenses |
| Major Contents | Assets, Liabilities, Equity | Revenue, Expenses, Profit or Loss |
| Financial Aspect | Financial position | Financial performance |
| Order of Preparation | Prepared after Income Statement | Prepared before Balance Sheet |
| Accounts Included | Permanent accounts only | Temporary accounts only |
| Use Case | Assess solvency & stability | Measure profitability |
| Example Timing | As on 31st March 2024 | For year ended 31st March 2024 |
Definition and Meaning of Balance Sheet and Income Statement
The balance sheet and income statement are key accounting statements. The balance sheet presents what a business owns (assets) and owes (liabilities) at a point in time. The income statement shows revenues and expenses, revealing profit or loss over a period. Both are vital for financial analysis and exams.
Contents and Format of Balance Sheet and Income Statement
Each statement contains specific accounts and follows a unique format. Knowing these helps students answer exam questions on their structure and usage.
| Balance Sheet | Income Statement |
|---|---|
|
|
Difference Between Balance Sheet and Income Statement
The balance sheet shows an organisation’s financial position at a specific date, while the income statement summarizes revenues and expenses over a period. Here are the major differences:
| Basis | Balance Sheet | Income Statement |
|---|---|---|
| Time Frame | As on a certain date | For a certain period |
| Purpose | Shows financial position | Shows profitability |
| Main Parts | Assets, Liabilities, Equity | Income, Expenses, Profit/Loss |
| Accounts Shown | Permanent accounts | Temporary accounts |
| Example Heading | As on 31st March 2024 | For the year ended 31st March 2024 |
| Preparation Order | After Income Statement | Before Balance Sheet |
| Shows | Solvency & liquidity | Profit/Earnings |
| Includes | Assets & Liabilities only | Income & Expenses only |
Relationship Between Balance Sheet and Income Statement
The profit or loss calculated in the income statement affects the balance sheet. If a company earns profits, these increase its retained earnings (a part of equity on the balance sheet). Thus, both statements are interconnected and together present a company’s complete financial picture.
Example of Balance Sheet and Income Statement
Let’s see a simple example for better understanding. Imagine Company ABC has the following figures for the year ended 31st March 2024.
| Income Statement for the Year Ended 31st March 2024 | |
|---|---|
| Sales Revenue | ₹1,00,000 |
| Cost of Goods Sold | ₹60,000 |
| Gross Profit | ₹40,000 |
| Operating Expenses | ₹15,000 |
| Net Profit | ₹25,000 |
| Balance Sheet as on 31st March 2024 | |
|---|---|
| Assets | Liabilities & Equity |
|
Cash: ₹15,000 Inventory: ₹10,000 Equipment: ₹75,000 Total Assets: ₹1,00,000 |
Loan Payable: ₹50,000 Equities: Capital: ₹25,000 Retained Earnings: ₹25,000 Total: ₹1,00,000 |
Use Cases and Exam Relevance
Students face questions on how to distinguish between the balance sheet and income statement. Knowing these differences is important for Final Accounts and for practical analysis of companies. Vedantu helps you grasp these concepts easily, supporting exam and business success.
Key Internal Links for Related Study
- Trial Balance Format
- Analysis of Financial Statements
- Profitability Ratios
- Difference Between Trial Balance and Balance Sheet
- Assets on Balance Sheet
In summary, understanding the difference between balance sheet and income statement is essential for exam scores and practical business analysis. The balance sheet shows financial position at a date, while the income statement reveals profit or loss for a period. Both statements together help you judge a business’s true financial status.
FAQs on Difference Between Balance Sheet and Income Statement
1. What is the main difference between a balance sheet and an income statement?
The balance sheet shows a company's financial position at a specific point in time (assets, liabilities, and equity), while the income statement summarizes its financial performance over a period (revenues, expenses, and profit/loss).
2. What is the difference between a balance sheet and a financial statement?
A balance sheet is a *type* of financial statement. Financial statements provide a comprehensive overview of a company's financial health, and the balance sheet is one crucial component, showing the company's assets, liabilities, and equity at a specific date. Other financial statements include the income statement and cash flow statement.
3. What is the difference between income statement and balance sheet in business central?
In Business Central (or similar accounting software), the balance sheet shows the assets, liabilities, and equity of a business at a specific point in time. The income statement (P&L) shows the financial performance, including revenues, expenses, and net profit/loss over a given period. Both are essential for understanding a company's financial situation within the Business Central system.
4. What is the difference between income statement, balance sheet, and trial balance?
The trial balance is an internal accounting report showing that debits equal credits. The income statement (or profit and loss statement) shows revenues and expenses over a period, determining profit or loss. The balance sheet shows the assets, liabilities, and equity of a company at a specific point in time. The trial balance is a step *toward* preparing the income statement and balance sheet.
5. What is the difference between a balance sheet and a P&L?
A balance sheet is a snapshot of a company's financial position at a specific date, showing assets, liabilities, and equity. A P&L (Profit & Loss statement), or income statement, shows the company's financial performance over a period, indicating revenues, expenses, and net profit or loss.
6. Are the income statement and balance sheet prepared for the same time frame?
No. The income statement covers a period (e.g., a quarter, a year), while the balance sheet shows financial position as on a particular date.
7. What accounts appear only in the balance sheet, not in the income statement?
Accounts such as assets (e.g., cash, inventory, equipment), liabilities (e.g., loans payable, accounts payable), and equity (e.g., share capital, retained earnings) are unique to the balance sheet.
8. Is the profit shown in the income statement linked to the balance sheet?
Yes, the net profit from the income statement is added to the retained earnings section of the balance sheet. This shows how profits impact the company's overall equity.
9. How does depreciation affect both the income statement and the balance sheet?
Depreciation is an expense on the income statement, reducing net profit. On the balance sheet, it reduces the value of the fixed assets over time, reflecting their declining worth.
10. Why are both statements required for financial analysis?
The balance sheet gives a picture of a company's financial health *at a specific point*, while the income statement shows performance *over a period*. Together, they offer a more complete view for informed financial decisions and analysis.
11. Can a company be profitable on the income statement but have poor financial health on the balance sheet?
Yes. A company might show a profit on its income statement but still have a weak balance sheet due to high debt, low assets, or other factors that only the balance sheet reveals.
12. How do cash flow statements relate to these two?
The cash flow statement shows the movement of cash, reconciling changes in cash balances reported on the balance sheet with the net profit from the income statement.
13. Why do Commerce exams focus on differences in a tabular form?
Tabular comparisons of the balance sheet and income statement highlight key differences clearly and concisely, aiding quick revision and better exam performance. This format is also ideal for memorization.
